Continental Airlines to cut 3,000 jobs, capacity

On Wednesday, UAL Corp.’s United Airlines, the nation’s No. 2 carrier, announced it would cut up to 1,100 more jobs, ground 70 airplanes and drop its coach-only service, named Ted. Two weeks ago, AMR Corp.’s American Airlines, the nation’s largest airline, said it would cut capacity 11 percent to 12 percent after the peak summer travel season and probably eliminate thousands of jobs, though it hasn’t given an exact figure.

Delta Air Lines Inc. said in March it would cut U.S. capacity about 10 percent in the second half of 2008. Northwest Airlines Corp., which Delta is buying, has announced smaller reductions, and a Northwest spokeswoman said further moves were being reviewed.

Philip Baggaley, an analyst with Standard & Poor’s, said capacity cuts would help, but “we still forecast heavy losses for most airlines this year.”

Fewer flights will inevitably lead to higher prices, most in the industry believe.

The biggest U.S. airlines have already raised fares about a dozen times since December, with some of the sharpest increases reserved for nonstop flights that let travelers avoid changing planes at crowded hub airports.

Airlines typically cut fares in the fall to spur ticket sales when kids are back in school and family vacations are over. That’s likely to remain true this fall, even with Continental, American and United offering far fewer flights, experts say.

“They’ll always discount for the fall even if they have less seats,” said Rick Seaney, chief executive of price-watching Web site FareCompare.com. “But you’re going to see more targeted restrictions, like minimum stay-overs, to prevent business travelers from getting cheap fares.”

Airlines that had eliminated restrictions such as Saturday night stay-overs on cheap fares, because business customers hated them, have been putting them back in.

Fewer flights are also likely to reduce the ability of travelers to find a convenient flight where they’re going. And airlines may drop service completely to some smaller cities.

Continental said it will announce next week which flights and destinations it will reduce or eliminate. The airline operates hubs in Houston, Newark, N.J., and Cleveland.

Fewer flights will mean fewer planes. Continental has already pulled six planes this year and mothball an additional 67 planes through 2009. By the end of June, its fleet will number 375.

Less than two months ago, Continental was in advanced talks to combine with United to create an airline even bigger than Delta-plus-Northwest. But Continental walked away from the deal in April as oil prices soared and the industry’s outlook slumped, and analysts see no other mergers immediately on the horizon.

Airline stocks rose on Continental’s announcement, even overcoming another rise in oil prices.

The Amex Airline Index rose 6.3 percent, and shares of Continental gained 70 cents, or 4.8 percent, to $15.20.

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