Thursday, Sept. 2, 2004 | 10:45 a.m.
BLOOMBERG NEWS
HOUSTON -- Continental Airlines Inc., the fifth-largest U.S. carrier, said today it will eliminate 425 jobs, mostly managers and clerical workers, to help reduce annual costs by $200 million.
Unless fares rise, the Houston-based carrier also will have to cut wages and benefits, Chief Executive Gordon Bethune said in a statement, without giving details. The company said it's negotiating savings from suppliers and is seeking to trim expenses for fuel, facilities and ticket distribution.
"This is setting the stage for follow-on concessions" from Continental's unions, said Bill Warlick, a Fitch Ratings analyst in Chicago. "It gets hard to sort of wring savings out of a company that has been transformed to a lower cost structure."
On Wednesday, Continental Airlines and its pilots union signed an unusual pact, vowing to work together under a new approach to labor-management relations.
The document cites the turmoil in the airline industry, where other carriers facing crippling losses due to high fuel prices and intense fare competition can't win concessions in acrimonious talks with unions.
"Everyone knows the situation is dire," Bethune said.
Continental is trying to trim expenses by $1.1 billion because of high fuel prices and growing competition from discount carriers that's holding down fares.
On May 18 Continental said it might have to ask workers for wage, benefit and pension-funding concessions, though the airline hasn't pursued that option yet. Warlick said he expects the airline still will seek such concessions.
"These are difficult times for all of us," Bethune said. "We continue to struggle to identify additional ways to lower our costs as continued losses jeopardize our survival."
Continental shares rose 4 cents to $9.41 in New York Stock Exchange composite trading at 11:52 a.m. The stock has declined 42 percent this year.
The airline's job cuts are 7.3 percent of the 5,850 management and clerical positions the company said it had at the end of last year. Continental said most of the reductions are being made immediately through firings and attrition. Spokesman David Messing declined to say how many are firings.
Employees who lose their jobs will get severance benefits and job-search assistance, Continental said.
The carrier this week restarted negotiations with its pilots union on a new contract after saying last month that it will recall at least 240 of the 436 flight-crew members from layoffs.
"I don't think they want to give them a pay increase," said Warlick, who rates the company's senior unsecured debt at CCC+, seven steps below investment grade. "If anything, the benchmark for pilot pay is coming down again."
Continental is also in contract negotiations with its mechanics and dispatchers and the contract for flight attendants becomes open for changes in October.
Major U.S. carriers have posted losses of about $21 billion since 2000 because of a drop in travel after the Sept. 11 attacks and a decline in fares amid increased competition from profitable discount carriers such as Southwest Airlines Co. This year, spot jet-fuel prices for delivery in New York harbor have risen 39 percent. Fuel is airlines' second-largest cost, after labor.
Continental, which had first-half net losses of $141 million, has tried to raise fares at least four times this year to help increase revenue as fuel pushed up costs. All of those increases were rolled back after a few days when some rivals declined to match the prices.
Continental said the job cuts announced today don't include its recent elimination of 253 reservation-agent positions.
The airline said its reservations-agent work force has declined 26 percent since the September 2001 terrorist attacks, the most of any worker group. With today's action, the management and clerical ranks have been reduced 24 percent, Continental said. Other groups have been cut 15 percent or less.
Total employment fell 22 percent to 37,680 workers at the end of last year from 48,400 three years earlier, Continental has said in annual U.S. regulatory filings.
Continental, which has about 2,900 daily departures, said yesterday that August passenger traffic rose 9.1 percent from a year earlier on 8.4 percent more capacity. Revenue per seat for each mile flown declined about 1 percent.
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