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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Wow, Mr. Kellner is just so insightful, good thing he pointed this out.
Looks like the US is going to be the worlds bitch.
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.
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.
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.
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)
@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.
That damn supply-demand graph.
@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.
Southwest airlines is doing fine, maybe its cause they offer a better and cheaper alternative to the legacy airlines.
Crisis = “I want a government bailout. Capitalism isn’t working out well for us.”
@petrarch1608: Or maybe its because they only fly 737′s.
@HIV 2 Elway: Which allow them to offer cheaper fares.
@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.
@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.
@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.
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.
@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)
@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.
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…
time to start investing in railroads again.. Im putting my stock in Union Pacific and Amtrack
@petrarch1608: exactly. perhaps the “crisis” is the result of their horrible business models.
@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
@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.
@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.
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.
Pardon me while I have a hard time feeling sorry for the airline industry.
(Bwahahahahahahahahaha!)
@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.
Oops, damned lack of Edit button. Totaled = Totaling. (blush)
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.
@basket548: Interesting re: hedging…I didn’t know anyone had fuel contracts out that far ahead.
@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.
@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.
@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.
@axiomatic: Pardon them when they get a government bailout on our dimes.
@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.
@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
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.
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?
@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.
@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.
@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.
Aw, man…the only US airline I actually like.
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.
@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.
@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.
@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.
@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?
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.
@basket548: Sorry, replied before reading the thread.