Layoffs Continue for Airlines in Crisis

Continental becomes latest to announce cutbacks, plans to slash 3,000 jobs.


June 5, 2008 — -- The nation's major airlines will stop flying more than 350 planes and lay off more than 4,000 employees by the end of 2009, reducing service to travelers around the United States this year and next, according to carriers' reports.

On Thursday, Continental Airlines became the latest carrier to announce cutbacks, saying it would retire 67 planes and lay off 3,000 workers to save money. More than half of those planes will stop flying by the end of 2008 and the rest of the aircraft will be retired in 2009. Reductions in staff will begin after the summer, though cutbacks in management and clerical staff will begin sooner, according to a notice sent this morning to employees.

"Continental today is announcing significant reductions in flying and staffing that are necessary for the company to further adjust to today's extremely high cost of fuel," the letter from Continental CEO Larry Kellner and president and Jeff Smisek stated today. "These actions are among many steps Continental is taking to respond to record-high fuel prices as the industry faces its worst crisis since 9/11."

In the past few months, all the nation's major airlines have decided not to fly as many planes or employ as many people as they'd like as fuel prices reach unprecedented levels.

Continental's news followed closely on the heels of Wednesday's announcement by United Airlines that detailed its own plans to retire 100 planes, lay off at least 1,400 workers and eliminate its low-cost Ted service.

About 80 of United's planes will be out of service by the end of the year and the other 20 will be retired in 2009. Removing those planes from service means United will slash domestic capacity over this year and next by 17 percent.

"They've chosen to take out airplanes rather than take out routes," said David Field, the U.S. editor of Airline Business Magazine. "What they're saying is 'we just cannot compete no matter what the route.'"

Carriers are making frugal business decisions because the ever-increasing price of fuel, now at $130 per barrel, has left them in a position many say they couldn't even imagine at the beginning of this year. According to the Air Transport Association, U.S. passenger and cargo airlines anticipate a $61.2 billion fuel bill this year, up from the $41.2 billion they paid for fuel last year.

It's been such a burden that eight airlines have gone out of business since Christmas, ATA said. For those still in business, fuel accounts for 30 percent to 50 percent of operating costs, according to David A. Castelveter, ATA's vice president of communications.

"With fuel at historically high levels, United and our competitors need to redefine ourselves in this marketplace," United CEO Glenn Tilton said this morning in a call to United employees. "The answers are not easy, yet this environment demands that we and the industry act decisively and responsibly."

The country's other major carriers have also announced cutbacks:

Delta is removing 15 to 20 mainline planes and 60 to 70 regional jets from service by the end of the year. Delta expects domestic capacity to be down 9 percent to 11 percent for the second half of 2008 compared with 2007.

Northwest will remove 15 to 20 aircraft from service -- two this month and the rest in the fall. In September, Northwest will reduce domestic system capacity by 5 percent versus its 2008 business plan, the carrier announced in April.

US Airways has announced it will get rid of six planes, a 2 percent to 4 percent reduction in capacity, in the second half of 2008. US Airways said that does not affect any employees.

American announced earlier this month that it plans to retire 40 to 45 mainline aircraft and 35 to 40 regional jets, reducing capacity by 11 percent to 12 percent.

Starting in September, American is discontinuing its Chicago to Buenos Aires, Argentina, service, eliminating its Boston to San Diego service, and scaling back its service from Chicago to Honolulu. In January of next year, the carrier will stop flying from Chicago to Honolulu altogether. This September, the carrier is also restructuring American and American Eagle flights out of San Juan, Puerto Rico, to the United States and various Caribbean destinations.

United and Continental both said this week that they are retiring older, less fuel-efficient planes. Continental will start cutting back in September. Continental will release details about how the cuts will impact specific flights and destinations by the end of next week, the carrier said Thursday.

Continental said the majority of employee cuts are expected to come through voluntary programs. Kellner and Smisek also announced today that they would decline their salaries for the rest of the year.

"The airline industry is in a crisis," Continental's Thursday letter stated. "Its business model doesn't work with the current price of fuel and the existing level of capacity in the marketplace. We need to make changes in response."

Cuts are affecting travelers in cities of all sizes around the country. According to the Department of Transportation Statistics, scheduled commercial service has disappeared entirely this year from 37 small airports around the country.

And several aviation experts agree that there's more to come.

"Unless the fuel bubble implodes, and I don't think it will, we're going to see whole cities losing service," said Field, editor of Airline Business Magazine. "We're going to see, probably, another airline bankruptcy or two."

Meantime, Field said the slew of cutbacks is going to continue making things difficult for travelers.

"It means we're going to have to search a lot harder to find deals," he said. "There will be deals, but they're going to be harder to find. You're going have to spend more time on your computer."

"I think if there's any good news on the horizon, I think we'll see less delays in the future because we have fewer planes in the air," said aviation economist Darryl Jenkins. "All the planes will still be packed full of passengers."

ABC News' Randy Gyllenhaal contributed to this report.

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