Continental Airlines Cuts Costs, Jobs, Customer Service

The price of fuel, which has been hitting new high records every day, has driven Continental Airlines to take drastic steps to reduce costs. The objective is to keep the airline solvent and flying, an objective most agree has a critical importance to the American economy.

Continental's CEO and president have also added their personal effort to the new strategy by cutting their salaries for the remainder of the year and declining incentive payments for 2008. When the big brass cut what goes into their pockets, you know that the trouble is deep and real.

Continental estimates that at current fuel prices, it will pay $2.3 billion more for fuel this year over last. That is at current prices. By the time you read this, petroleum prices will probably have risen another handful of points triggering a concurrent rise in the $2.3 billion estimate.

CEO Larry Kellner and President Jeff Smisek issued a far-reaching comment which states that the present business model by which Continental-- and indeed all airlines--operates is not working in the current economy, dependent as it is on the price of oil. In order to implement a new business model, Kellner and Smisek announced an 11 percent reduction in domestic mainline service, though the effected flights and destination stops have not yet been announced. But of course, customers at those locations will be left with one less travel resource.

Kellner and Smisek also announced a fleet reduction of about 100 planes. All 737-300s, which are older and less fuel efficient, will be retired by the end of 2009; 27 of these will be out of service by September of 2008. Continental's 737-800s and -900s, which are newer and more fuel efficient, will carry the company forward with its new business model. Continental hasn't specified whether it will follow suit with other airlines and also eliminate free snacks for customers.

All tolled, Continental's cuts eliminate about 3,000 jobs that represent approximately 6 percent of Continental's workforce. Additionally, it was announced that ExpressJet may undergo a reduction of its fleet in 2009, although for 2008 ExpressJet will continue to operate its 205 regional plane fleet.

While the changes being made at Continental bode ill tidings for the overall economy and distress for Continental's customers, investors reacted optimistically to the announcement that indicates a viable attempt to steady the weakly rocking airline industry.

Continental stock had been climbing steadily through the week from 13.5 up to 15 on Wednesday, but ended Wednesday with a sudden drop back down to 14.5 in anticipation of Thursday's news. When the news of Continental's announcement hit, there was a reaction that sent the price climbing straight up to 15.5, which was nice affirmative action but still nowhere near the 35 of a year ago. Continental ended the week closer to Monday's price, closing at 13.87. Customers have yet to register their votes.

Resource: http://www.investorguide.com/stock-archives.cgi?date=060608