Continental to cut jobs, raise luggage fees

July 21, 2009 11:19:23 AM PDT
Continental Airlines Inc. said Tuesday it will cut 1,700 jobs and raise fees for checking luggage after it posted a large loss for the second quarter amid falling traffic. The Houston-based airline said Tuesday it lost $213 million, or $1.72 per share in the quarter ended June 30, compared with a loss of $5 million, or 5 cents per share, a year earlier.

Excluding one-time charges, the loss was $169 million, or $1.36 per share. Analysts expected a loss of $1.35 per share excluding charges, according to a survey by Thomson Reuters.

Revenue tumbled 22.7 percent, to $3.13 billion, nearly matching the $3.14 billion forecast by analysts.

The 1,700 jobs cuts Continental announced amount to about 3.4 percent of its work force. They are on top of plans to eliminate 500 reservations agents and to put 700 flight attendants on leave. Continental aims to raise $100 million a year with higher fees.

The carrier boosted by $5 the fees for checking bags on U.S. flights -- to $20 for a first bag, $30 for a second for passengers who check bags at the airport instead of online. The change took effect immediately for flights on or after Aug. 19.

The airline also added $5 to the fee for booking a reservation over the phone, and it said more revenue-raising measures were coming.

Chairman and CEO Lawrence Kellner said a key measurement of revenue as a ratio of capacity "appears to be bottoming out," but added "it is doing so at low levels and we must take aggressive steps to increase revenue and reduce costs."

Traffic measured in miles flown by paying passengers fell 6.4 percent compared with the second quarter of last year. Continental, including its regional affiliates, cut capacity even more sharply, by 7.8 percent, resulting in slightly fuller planes despite fewer passengers.

Airlines can cut capacity by flying fewer flights or using smaller planes.

The airline caught a break from fuel prices that were lower than last year, resulting in a savings of $762 million or 46 percent. But revenue dropped by $918 million from a year ago.

The swine flu outbreak, which devastated traffic to Mexico for a time, cost $50 million in lost revenue. But the recession was a bigger factor, as it cut into travel demand, especially among business travelers who often pay higher last-minute fares.

Continental took $44 million in charges during the second quarter to write down the value of it planes in the current airline industry slump.

Continental faces big changes in the months ahead. CEO Kellner announced last week that he is stepping down at year end and will be replaced by President Jeff Smisek.

In October, Continental expects to join the Star Alliance that includes United Airlines and Lufthansa. The Transportation Department recently approved antitrust immunity for Continental to work closely with its new partners in setting prices and schedules on international service.

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