Continental Says Airline Industry Is "In A Crisis"

Continental will cut 3,000 jobs and reduce capacity by 11% due to the ongoing “crisis” in the airline industry.

Continental chief executive Larry Kellner and the company’s president, Jeff Smisek said in a message to employees: “The airline industry is in a crisis. 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.”

Both announced that they would not take salaries for the rest of this year.

3,000 Continental Jobs, Capacity To Be Cut [WNBC]
(Photo: Zonaphoto )

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  1. crabbyman6 says:

    Wow, Mr. Kellner is just so insightful, good thing he pointed this out.

  2. Mozoltov, motherfucker says:

    Looks like the US is going to be the worlds bitch.

  3. dragonfire81 says:

    Who needs salaries when you already have millions in the bank and a ton of stock options to boot.

    They make it sound like they are doing it “out of the good of their hearts” but the truth is they already have tons of money.

  4. Nissan288 says:

    I would at the very least expect them to do this. After all, look at the other CEOs and Presidents in the finance sector, making huge salaries and raises even while people were getting fired left and right.

  5. ARP says:

    Uh, yeah, they’re in a crisis. You can’t double or triple fares and expect the same number of passengers. You’ll always have your core of wealthy and businiess travelers, but “optional” flyers are starting to stay home and the business and wealthy fliers can’t carry the load. They’re assuming the government will bail them out (which we will), but the bail out will probably mean a few of these companies get shut down.

    I can’t beleive these companies are so short sighted (or maybe they don’t care). You can’t support the havoc in the middle east, threaten Chavez, ignore Nigeria, etc. and then act surprised when there is a production shortage. On top of that China and India’s grown should have been a surprise to no one. They should have seen that coming and bought oil options like crazy. The companies holding on are the ones that actually thought about what was going on in the world and were proactive.

  6. Countdown to re-regulation…(not that it would be a bad thing, necessarily. Well-regulated monopolies can work out for the better, at least compared to what we have right now with the airlines)

  7. ohiomensch says:

    @dragonfire81:

    I think that even they know that foregoing salaries is a symbolic gesture. I don’t care if you are a millionaire, if you have a contract that says you are entitled to a salary, you are entitled to a salary. John Kennedy did not accept a salary for being President. However symbolic, the other side of it would be, “How can these guys accept millions in salaries when their companies are going in the toilet?” They can’t win.

  8. chiieddy says:

    That damn supply-demand graph.

  9. JustThatGuy4 says:

    @Ash78:

    Yeah, that’s a great idea. Service driven by political concerns, not market demand, higher prices across the board, and no consumer choice (want no frills but lower fares? sorry, not allowed. want premium service and higher fares? nope, can’t do that.).

    The airline industry’s problems are primarily problems for industry investors – air travel will be provided, at a price and volume that the market will support, and airlines will continue to be a terrible place to invest money.

  10. petrarch1608 says:

    Southwest airlines is doing fine, maybe its cause they offer a better and cheaper alternative to the legacy airlines.

  11. mantari says:

    Crisis = “I want a government bailout. Capitalism isn’t working out well for us.”

  12. HIV 2 Elway says:

    @petrarch1608: Or maybe its because they only fly 737’s.

  13. HIV 2 Elway says:

    @HIV 2 Elway: Which allow them to offer cheaper fares.

  14. @petrarch1608: Very true, but Southwest only connects secondary airports, flies shorter-range equipment, and doesn’t go interncontinental (under their own flag).

    Nonetheless, I think all carriers could learn a lot from their model and efficiencies. Problem is that the legacy carriers are already in their self-dug holes too deep, and the unions hold the shovel now.

  15. ClayS says:

    @Ash78:
    With the higher fuel prices, we no longer need re-regulation. Air fares are skyrocketing, there will soon be fewer passengers and routes. Service will improve just because airport capacity will less overburdened. Of course the poor will rarely fly anymore, it will be people that are willing to pay the higher fares.

  16. ARP says:

    @Ash78: True, but long hauls are one is one of the legacy carriers bright(er) spots in terms of profitability.

    It seems we’re a few years behind Europe as far as market evolution. I think smaller carriers will take on much of the short-haul/regional market with the legacies (what’s left of them) focus on long haul and business market.

  17. Kounji says:

    Yeah. The airline companies did an incredibly crappy job hedging oil futures. Now they are paying the price. I don’t know what’s going to happen but don’t be surprised if summer travel is down overall. The hope is that the oil prices won’t carry over into fall but I sincerely believe that it will. Time to take the train, or buy a bike.

  18. @ClayS: With the higher fuel prices, we no longer need re-regulation

    This may end up being true, but I’m more concerned about the interim period where they start cutting less-profitable routes. This isn’t a problem from the perspective of a NYC/Chicago/LA citizen, but the secondary and tertiary markets might have to suffer (ie, long drives to the region’s big airports…or just forgo the airlines altogether)

  19. Kounji says:

    @ARP: We’ll probably see much more industry consolidation in the coming years,and i wouldn’t be surprised if see the failure of one of the legacy carriers in the next 10 years. I don’t see the airline industry finding its way to profit for a very long time and least until some of these variable cost come down. Hell southwest oil options run out I think in 2009, or 2010 so they’ll have to raise prices at well.

    Its so bad its making me considering moving to Illinois so I can see my parents with ease.

  20. naptownman says:

    The legacy carriers who use a multi-price model brought the crisis on themselves. Travelers are conditioned to buy at the lowest price, which also happens to be a price that’s well-below the carrier’s cost. Southwest can use a fixed price model and you don’t hear them crying fuel crisis…

  21. neuman1812 says:

    time to start investing in railroads again.. Im putting my stock in Union Pacific and Amtrack

  22. nedzeppelin says:

    @petrarch1608: exactly. perhaps the “crisis” is the result of their horrible business models.

  23. nedzeppelin says:

    @neuman1812: amtrack needs over a billion dollars every year from the taxpayers to stay afloat.. i wouldn’t go putting my eggs in that basket anytime soon

  24. basket548 says:

    @naptownman: @Ash78: @petrarch1608: @HIV 2 Elway:

    Nope, nope, nope, and sort of.

    The reason that Southwest is smelling like roses in all of this is the fact that it hedged its fuel purchases to the tune of $3 billion for the next few years. That’s really the only difference b/t SW and the legacies. Though Elway, the fact that it has standardized aircraft does help to keep costs down.

  25. HIV 2 Elway says:

    @naptownman: No, all airlines, Southwest included, use a multi-price model. The more flexible (ie. the earlier in advance you book) you are, the cheaper your flight. Southwest still charges higher fares to business travelers, who rarely book in advance. They are able to keep costs down because their fleet is comprised of only Boeing 737’s, drastically reducing maintenance costs. Also, because the company is so stable, pilots are willing to work for reduced salaries.

  26. Trai_Dep says:

    Totaled the number of industries that Big Oil & Bush/Cheney/McCain has wrecked across the US economy, can we all agree that they hate business?
    I’m trying to imagine how terrorists running amok could cause more damage to the global economy than these guys have, and I’m seriously drawing a blank. Seriously. And I’m quite the imaginative fellow.

  27. axiomatic says:

    Pardon me while I have a hard time feeling sorry for the airline industry.

    (Bwahahahahahahahahaha!)

  28. HIV 2 Elway says:

    @basket548: They smelled like roses before this oil mess. Bottom line, oil hedging, standardized fleet, an employee first mentality all point to one thing…a well run organization.

  29. Trai_Dep says:

    Oops, damned lack of Edit button. Totaled = Totaling. (blush)

  30. JiminyChristmas says:

    This so-called “crisis” is at least 10 years old. As I remember it, before 9/11 the biggest issue concerning the airlines that was being discussed was a Passenger’s Bill of Rights. They were operating their business that poorly. 9/11 shouldn’t have amounted to instant bankruptcy for the airline industry but it did because they were in such a sorry state to begin with. Even the multi-billion dollar bailout they got in 2001-2002 did nothing but buy them a little time.

    I would hate to see yet another taxpayer-funded bailout of the airline industry. If the federal and state governments wanted to do something to help the airlines they could get to work on expanding airport infrastructure and modernizing air traffic control.

  31. @basket548: Interesting re: hedging…I didn’t know anyone had fuel contracts out that far ahead.

  32. nedzeppelin says:

    @Trai_Dep: another person who believes evil bush and cheney control everything that happens in this country (or the world)…

    really, the position of president is overrated. congress controls a lot more, and even they can’t and shouldn’t be held responsible for ineffective business models.

  33. basket548 says:

    @HIV 2 Elway:

    Agreed, but simply from a consumer point of view. All airlines were making money in the late 90’s and 2004-2007, except SW promoted an image of friendliness and simple pricing and (shocking!) stuck to that model. The fuel hedges allow them to keep doing that into the future.

  34. basket548 says:

    @Ash78:

    Actually, on a recent call, a research analyst suggested that SW sell all the hedges and distribute the profits to the owners (shareholders), so as to see whether it is SW’s business model or hedges that was allowing them to thrive in this market (and of course, to enrich the shareholders). As you may have guessed, SW wanted no part of it.

  35. howie_in_az says:

    @axiomatic: Pardon them when they get a government bailout on our dimes.

  36. nedzeppelin says:

    @basket548: why gamble to make a point to some analyst?

    whatever is working for southwest, it’s working, so i wouldn’t wanna mess with it either.

  37. t325 says:

    @Ash78: The secondary airport thing doesn’t bother me one bit. I flew Southwest for the first time last week, in and out of Fort Lauderdale to get to Miami since we were taking a cruise. It worked out just as well as had we flown directly into MIA, and, being a smaller, less traffic airport, I bet I got through security quicker than if I went through MIA. Not to mention for 4 of us, we saved about $500 compared to the cheapest “legacy” carrier (which I believe was American). I enjoyed my first SWA experience and will definitely be using them again

  38. Starfury says:

    I’d love to see more rail. I’ve traveled a few times by train and it is WAY more comfortable than air travel. Sure it’s slower but maybe it’s time for the country to slow down a bit.

  39. MonkeyMonk says:

    The industry is indeed in a crisis and they seem to be doing the best they can to make that crisis worse by the week.

    Is the RIAA secretly consulting with the airline industry?

  40. @t325: The secondary airport thing doesn’t bother me one bit.

    Oh, I didn’t mean in terms of inconvenience to the passengers (heck, I live in Birmingham and Southwest gets me where I need to go 90% of the time)…I meant that they were able to save on lots of fees and delays by avoiding the major airports, by and large. They pass that savings along and it helps keep the fares down.

  41. t325 says:

    @Ash78: Ah, gotcha. I thought you meant that like it was a bad thing. I definitely liked FLL (first time using a smaller airport, although FLL isn’t really small and has service by most of the legacys, Spirit and JetBlue) compared to the larger ones I’ve flown in and out of. I did have a bit of a line at check-in, but I was through security in a couple minutes and didn’t have to haul ass across a terminal, everything was close together.

  42. roadapples says:

    @Trai_Dep: If I hear one more person blame Bush for when they slip on a banana peel, get over it, he is not running for President again.

  43. TechnoDestructo says:

    Aw, man…the only US airline I actually like.

  44. tricky69 says:

    In a consumerist post I mentioned that the top three airline have been mismanaged for a long time and that’s they are having a crisis. It’s the airline industry as whole it’s the top dogs with worst management. Cutting jobs and reducing capacity isn’t going to do anything unless they start managing their business better.

  45. jtheletter says:

    @nedzeppelin: It’s called cause and effect. Tell me, what were oil prices before the US invaded Iraq? And what are oil prices now? Are you trying to argue that our nation’s international policies, set by the current executives, have had no or minimal effect on fuel costs? The airlines are going dead broke right now because the costs of jet fuel have tripled or more in under a decade. Now that I’ve laid out the dots, do you at least understand how they relate? It’s not the only influence in the failure of the airline industry but it’s certainly a very, very big one.

  46. Grive says:

    @dragonfire81: And those millions are irrelevant.

    If they decide to make the symbolic gesture. Let them. If that prevents a couple layouts, all the better for them.

  47. ringo00 says:

    @ARP:
    @petrarch1608:
    @HIV 2 Elway:

    Southwest is profitable now for a lot of reasons. The facts that they only operate one type of aircraft and keep expenses down is part of it. The main thing that is keeping them afloat right now is that 10 years ago they bought a boatload of fuel futures. They are getting fuel right now for about a third of market price.

  48. nedzeppelin says:

    @jtheletter: iraq does not supply oil for the world. get with the times, gas in europe has always cost many times what it does in the US, and europe continues to see the same gas cost increases we do. americans have just been spoiled for decades. oil is a GLOBAL product. both in supply and demand.
    if “iraq did it” is the reason gas has doubled in a year, then you would have us believe iraq formerly produced half the world’s oil supply, and currently produces none, neither of which is true.

    you are somewhat right about cause and effect – global demand perpetually increases, global supply remains steadily constant based on opec’s decisions, and the *effect* is more expensive oil. that is at least, one of the larger of the many reasons oil costs more, including speculation, inflation, etc.

    someone sold you a very simplistic anti-bush line when they told you “bush is the reason gas doubled!”

    airlines were going bankrupt long before the US invaded iraq.

    i guess if nobama takes over you expect to see 1.50/gal again eh?

  49. BlackFlag55 says:

    A crisis in the cost of energy really can doom the entire economy to the point of a 50 year recovery, if ever.

    Oil prices are relative to oil-contract settlement costs in dollars. Iraq and the rest of it a sideshow. We borrowed heavily to conduct operations in Afghanistan and Iraq and elsewhere and the dollar cannot be stretched that thin. Fuel doesn’t cost more … the illusion is, the dollar doesn’t buy more. The dollar is shrinking, not fuel costs rising. A dollar of gasoline cost 25 cents in the 40s when a quater was a quarter ounce of silver. Silver today costs roughly 18$ an ounce. What’s a quarter of 18$? A gallon of gasoline costs roughly $4.50 today. Do you see the irony? Gold, silver, oil … commodities that hold their value. The paper dollar is radically deflated in terms of purchasing power, meaning it buys less than it used to. How much less? Well, what used to cost you a quarter now costs you $4.50.

    The Fundamental Mathematical Problem is this … even our fantastic economic engine cannot produce enough [profit to tax] to BOTH spend like drunken sailors on an ever-expanding Entitlement Society, AND pay for National Defense. Can’t be done. Can’t do both. The cost today of trying to do both is borrowing billions from Red China to prop up the dollar so that Americans can borrow and spend consumer dollars on products Red China makes that we used to manufacture. The whole damn crisis of exporting jobs, exporting manufacturing and these ridiculous fuel costs us due entirely to … a deflating paper dollar.

    Oil doesn’t cost anymore than it used to … just like gold doesn’t cost anymore than it used to. It’s the US Dollar that isn’t worth a damn in purchasing power. And that’s not you, me or the oil companies that did it. It’s Congress … Congress borrowing so much from the Fed that they’ve watered down the dollar until it isn’t worth the paper its printed on.

    You cannot borrow your way into prosperity.

    Congress is the enemy.

  50. ringo00 says:

    @basket548: Sorry, replied before reading the thread.

  51. ianmac47 says:

    @nedzeppelin:

    The subsidy Amtrak gets is very small compared to the billions the federal government spends on highways and air transportation subsidies.

  52. TorrentFreak says:

    I feel bad for the employees that bust their ass. The fat cats who lose an extra summer home I could care less about.

  53. HeartBurnKid says:

    @dragonfire81: You know, at least they’re doing it. I can’t count how many stories I’ve seen where CEOs make tons of money, not only in salary but in bonuses, stock options, etc., all the while the companies they’re supposed to be running fall apart around them.

  54. n301dp says:

    @tricky69: Since the 1990s Continental has been one of, if not the best, managed airlines out there.

  55. ARP says:

    @BlackFlag55: I agree that the dollar is contributing the the (half) illusion that gas prices are higher. However, one other factor is contributing to higher gas prices- demand. China and India are creating greater demand.

    BUT, part of the problem is that through our “dimplomatic decisions” we’ve reduced the amount of oil available on the global market. So, even though we didn’t buy from Iraq or Iran, other countries have. But since we’ve f*cked up the middle east a bit, they have to buy from other suppliers as well (the ones we use). In addition, we’re threatening Chavez and that’s actually giving him power power than he previously had (because when outsiders attack, we tend to rally around our leader, no matter how wrong) and its jepordized that oil through nationalization. Analysts consider that when making reccomendations to buy oil at at what price.

    So, in fact Bush, his war, and his cowboy diplomacy, did HELP (read: not sole cause, but a big contributor) raise prices.

  56. Trai_Dep says:

    @ARP: Also, the US dollar’s slide has had a huge role in our current accounts deficit to OPEC.
    The currency markets not being particularly stupid, they look at the policies that the GOP has followed post-9/11 and have voted that the inmates are in charge of the asylum.

    It’s pretty amazing what Republicans can do in seven short years when they control the three branches of government.

    On the bright side, at least Terry Schiavo was saved!
    Oh. Wait.

  57. u1itn0w2day says:

    Airline or Airplane expert question:would it be better to have many shorter routes with smaller planes even though it will mean more connecting flights?-would 2 smaller planes to the same location be more efficient than one larger one.

    And personally I think the airline industry died by the mid 90s.To me that’s when the service started tanking and prices started creeping up.Anyone who flew before the early 90s realizes what the customer has lost in the way of service,food,fees,flight times etc.

  58. basket548 says:

    @ringo00:

    Haha, that’s cool – great minds…

  59. LosersHaveCreditCardDebt says:

    Get your act together. Quit crying. Take personal responsibility for your life. Don’t ever blame anyone but yourself for your situation. Take all the credit and take all the blame.

  60. matto says:

    In other news, NBC announces water is wet, sky blue.

  61. I think Mr. Garrison summed it up best: AHHHHHHHHHHH!!!! AIRLINE MOTHERFUCKERS!!! YOU PIECES OF SHIT!!!! COCKSUCKING SONS OF BITCH AIRLINES!!!!!!

  62. BlackFlag55 says:

    Arp – absolutely. BORROWING to pay for military operations is not just absurd, but suicidal. Borrowing to pay for national security is just flat out insane. We borrow our own currency when we have the Constitutional right to print it without cost of interest. Then … we borrow stupendous sums to pay for an ever expanding entitlement society that draws from the economic engine without ever putting anything in. THEN … when real trouble comes and must be met sword on sword we have to BORROW again to meet that demand. And we end up like Ed McMahon, a one time multi-millionaire who now cannot work and took the wrong bet on bad borrowing advice and is about to lose his house. Not one dime of your tax money goes to operate the government. It all goes to pay the interest on the funds we borrowed to run the government.

    Whether or not the military actions in Iraq and Afghanistan were warranted (and I’m to the right of Ghengis Khan politically), the economic facts are the US Economy cannot carry the dead weight of an entitlement society + the dead weight of extended military operations indefinitely on borrowed money.

    Now, consider our enemies … like Russia and Saudi Arabia, brimming with leviathan amounts of what was our cash … wouldn’t this moment in our economic picture be the moment to wage war on the dollar and eliminate us as a competitor on the global power scene? They don’t have to fight us on the ground. They can simply spend our cash on guerilla operations and terror tactics to bleed us and bleed us until we can no longer afford to stay in the theatre of operations. Kill our dollar and we no longer can influence the world. Costs them very little since its OUR MONEY they’re using to stymie our clear cut victory. Our money, as in out of your wallet through the gas pump and into their hands. In every real sense, we’re paying for the terror we fight because of Congress’ refusal to allow us to break free and become energy independent.

    Again, Congress is the enemy because it is Congress that won’t allow the military to deliver the killing blow right off the bat. Congress will only allow itty bitty incremental hand slapping, not the one time OMG Don’t Screw With America killing blow that is not only cost effective but keeps the world stable.

  63. jcoltrane says:

    How about just honestly raising your prices to reflect increased fuel costs instead of continuing to offer artificially low prices and then screwing your customers out of every dime possible over unmentioned “fees.”

    Sure, higher prices might slow sales a bit, but letting your customers not feel ass-raped might actually make people want to fly again, rather than avoid it like the plague. Security delays are bad enough, I don’t want to be surprised by having to pay an extra $150 because my wife packed an extra pair of shoes. Raise your prices to cover costs and treat your customers better than a begging refugee.

  64. u1itn0w2day says:

    jcoltrane:great idea-just raise prices to reflect fuel costs.How much money do you think just an additional 5$ per ticket would generate.

    I think what happens is that they try to cover fuel costs by all those fees but then they start using them to cover other things and before you know they become more dependent on fees than a junkie on crack.

    Then for PR sake and legal reasons they wind up refunding a huge amount of fees they do collect.Your right,just raise the ticket prices-a little.

  65. S-the-K says:

    With the help of the now-federalized and unionized TSA (you can’t even fire the incompetent workers if you wanted to), and with their increasing number and amount of fees for amenities, the airline industry is shooting themselves in the foot with a tommy gun… with a 50 round drum magazine… in full-auto.

    Just as we only have two bus lines left — Greyhound and Trailways (do they still exist?) — and only one rail line (Amtrak) we will eventually have only a couple airlines left. And the airlines will make bus travel look like riding in a Cadillac.

  66. nedzeppelin says:

    @ianmac47: amtrak is only one company

    if continental or delta received over a billion dollars from the govt every year, i bet you’d be concerned

    yes, the highway bill is an unimaginable inflated piece of pork. iraq war = 100 billion a year, annual highway budget? over 300 BILLION a year!! you can’t spend 300 billion dollars in a year repaving a few roads. let’s assume building materials cost 100 billion (the cost of the entire international space station), and the other 200 billion is labor – if we assume highway workers get a generous $20/hr wage, that would mean the govt employs 4.8 million people to repave roads?
    it goes to teapot museums, bridges to nowhere, and unnecessary labor, because in big govt, if you don’t spend all your budget this year, you may not get as much next year. and everyone’s fighting for their piece of the pie. so even when inflated budgets aren’t warranted, they still find a way to flush it all down the toilet

  67. Overheal says:

    maybe they wouldnt lose so many customers if they didnt cram us all in like sardines. Full plane, my seat was jammed in the upright position for a trans atlantic flight and Im 6’2″. I can still remember the aches.