US Airways, Continental trimming service

Wednesday, Aug. 21, 2002 | 11:21 a.m.

SUN WIRE REPORTS

In Las Vegas

Neither Continental nor US Airways has announced whether any of their Las Vegas flights will be cut.

Continental operates 15 daily round-trips between Las Vegas and Cleveland, Newark and Houston.

US Air operates eight daily roundtrips between Las Vegas and Pittsburgh, Philadelphia and Charlotte, N.C.

US Airways plans to reduce its mainline jet service 13 percent by the end of the year and reduce the fleet by 33 planes --10 percent -- to 278.

And Continental Airlines said Tuesday that it would start charging extra fees to its low-fare customers for certain services and make other cutbacks in an effort to stanch its losses.

In the months after the Sept. 11 attacks, when many airlines began cutting back on customer services, like hot food on flights, Continental's Chief Executive, Gordon M. Bethune, was fond of saying, "We will not take the cheese off our pizza." But the downturn in travel and the industry's troubles have made cutbacks inevitable.

In addition to imposing the fees, Continental plans to reduce its capacity in the next year, freeze hiring and ground 11 Boeing MD-80s, in addition to the 49 aircraft taken out of service since Sept. 11.

The cutbacks are the latest announced by a major airline after several carriers said last week that they were reducing capacity to trim costs. American Airlines said that it was laying off 7,000 people and making changes that follow more closely the no-frills airline model made popular by Southwest Airlines. Continental's announcement was further evidence that the full-service carriers are moving in that direction to curb their losses, which amounted to $1.4 billion last quarter.

"These are challenging times in our industry, and we need to do something now," Bethune said in a statement. "We're taking action both internally and externally, and all the steps we're taking today are necessary. Unless market conditions improve quickly, we'll be forced to make further changes in every aspect of our operation."

For the average passenger, the changes mean that the travel experience will be closer to that on a no-frills airline. Ned Walker, a spokesman for Continental, said he could not provide more details on the extra fees for services until they are introduced in the next several weeks. But they will affect travelers buying lower-priced fares, he said.

There will be 100 initial changes, he said, and some will directly affect customers. For example, the airline will charge $20 extra for each paper ticket, a change that American and United Airlines have already made. Passengers will not receive a full can of soda unless they ask. They will also have to ask for plastic knives at breakfast if they want one. Those last two changes will save the airline $1 million and $80,000 a year, respectively, Walker said.

Continental said it expected its changes to save $80 million for the rest of this year and $350 million a year after that.

The company will also start strictly enforcing a two-bag limit on checked baggage by charging $80 for each additional bag. It said discounts on certain low-fare ticket types would be eliminated.

Continental said its capacity in 2003 would be 4 percent below this year's capacity. Its capacity in November will be about 7 percent below what it is this month, although about 60 percent of that change is the standard drop that comes with the transition from summer to fall, which is historically slower.

Michael J. Linenberg, an analyst at Merrill Lynch, said in an investors' note that the cost-cutting efforts were "meaningful" and praised the capacity cuts. "Restricting supply would bring back some pricing leverage to the airlines," he said.

But other industry experts warned that trimming frills could be dangerous because it narrows the differences between a full-service carrier and a low-cost carrier. Consumers could decide to fly on a low-cost airline because they would not get much more for a higher-priced ticket on a full-service carrier, they said.

"Continental is trying hard to reduce costs without doing anything to increase service quality," said Ronald Rust, a professor of marketing at the University of Maryland School of Business. "At the same time, they really can't compete on costs with a Southwest. They are put together fundamentally differently."

Travel agents were also disgruntled about Continental's changes, which include several additional fees for agencies.

The USAir reductions, part of the bankrupt carrier's restructuring, will result in 250 pilot layoffs in November, on top of 1,070 already been furloughed, company and union officials said. The nation's seventh-largest carrier also indicated there could be another 250 pilot furloughs early next year.

Chief Executive Officer David Siegel, in outlining the plans to employees, said that in order to return to profitability the airline must streamline by operating fewer aircraft and eliminating unprofitable flights -- a move that will shrink the number of its daily mainline flights to 1,350 at year's end from 1,550 now.

The Arlington, Va.-based carrier is struggling to reshape itself into profitability by replacing mainline jet service with commuter jet operations to better match airline capacity to passenger demand. US Airways has said it must increase the number of smaller, regional jets it deploys in order to stave off competition from such low-cost, low-fare carriers as Southwest and JetBlue.

Siegel said he expected that jobs lost in the mainline operations would be picked up by expanded regional jet operations, though pilots and others who shift from mainline to commuter jet service can expect to be paid less.

US Airways did not provide any details Tuesday on which flights would be eliminated as a result of the mainline fleet's pending downsizing or what its impact may be on its three hub cities -- Pittsburgh, Philadelphia and Charlotte, N.C.

The carrier also has asked for $1 billion in annual labor-cost reductions from its employees, including $465 million agreed to by the Air Line Pilots Association, as well as for more control of work rules.

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