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Continental To Reduce Capacity, Fleet And Staffing

Continental To Reduce Capacity, Fleet And Staffing

 
Old Jun 5, 08, 6:17 am
  #1  
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Continental To Reduce Capacity, Fleet And Staffing

CONTINENTAL TO REDUCE CAPACITY, FLEET AND STAFFING

Sixty-seven mainline aircraft and 3,000 positions to be eliminated; Larry and Jeff decline their salaries for the remainder of the year



CO today is announcing significant reductions in flying and staffing that are necessary for the company to further adjust to today’s extremely high cost of fuel. These actions are among many steps CO is taking to respond to record-high fuel prices as the industry faces its worst crisis since 9/11.

The price of Gulf Coast jet fuel closed yesterday at $151.26 – about 75 percent higher than what it was a year ago. At that price and at our current capacity, our fuel expense this year would be $2.3 billion more than it was last year. That increase alone amounts to about $50,000 per employee.

These record fuel costs have fundamentally shifted the economics of our business. At these fuel prices, a large number of our flights are losing money, and CO needs to react to this changed marketplace.

Network Changes

Starting in September, at the conclusion of the peak summer season, CO will reduce its flights, with fourth quarter domestic mainline departures to be down 16 percent year-over-year. This will result in a reduction of domestic mainline capacity (available seat miles, or ASMs) by 11 percent in the fourth quarter, compared to the same period last year.

By the end of next week, CO will provide details on specific flights and destinations that are subject to reduction or elimination. For additional information on departures and capacity for 2008 and 2009, see Table A.

Co-worker Impact

As a result of the capacity reductions, CO will need fewer co-workers worldwide to support the reduced flight schedule. About 3,000 positions, including management positions, will be eliminated through voluntary and involuntary separations, with the majority expected to be through voluntary programs.

The company will offer voluntary programs in an effort to reduce the number of co-workers who will be furloughed or involuntarily terminated due to the capacity cuts. Details of these programs will be available next week.

The reductions will take effect after the peak summer season, except for management and clerical reductions, which will begin sooner.

In recognition of the crisis and its effect on their co-workers, Larry and Jeff have declined their salaries for the remainder of the year and have declined any payment under the annual incentive program for 2008.

Fleet Changes

CO will reduce the size of its fleet by removing the least efficient aircraft from its network. To accomplish this, CO is accelerating the retirement of its Boeing 737-300 and 737-500 fleets. In the first six months of 2008, CO removed six older aircraft from service. CO will retire an additional 67 Boeing 737-300 and 737-500 aircraft, with 37 of these additional retirements occurring in 2008 and 30 in 2009. Given the need for prompt capacity reductions in today’s environment, 27 of the 67 aircraft will be removed in September. By the end of 2009, all 737-300 aircraft will be retired from CO’s fleet.

CO will continue to take delivery of new, fuel-efficient NextGen Boeing 737-800s and 737-900ERs. Overall fuel efficiency will improve measurably as CO takes delivery of 16 of these aircraft in the second half of 2008 and 18 in 2009 and accelerates the retirement of the older, less fuel-efficient aircraft as mentioned previously.

By the end of the second quarter of 2008, CO will operate 375 mainline aircraft. Taking into account both the accelerated retirements and scheduled deliveries, CO’s fleet count will shrink to 356 aircraft in September 2008 and 344 aircraft at the end of 2009 (see attached Table B).
coairtul is offline  
Old Jun 5, 08, 6:23 am
  #2  
 
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Where is Table A? I want to know more about the reductions.
stinky123 is offline  
Old Jun 5, 08, 6:24 am
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I think Table A is part of the internal letter sent to CO employees.
ual744777sta is offline  
Old Jun 5, 08, 6:25 am
  #4  
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Sorry Guys I do not know how to post the table it was part of a PDF file sent to employees. Check the news wires they may have it.
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Old Jun 5, 08, 6:26 am
  #5  
 
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What is strikingly different is that Larry and Jeff have declined their salaries for the remainder of the year!!! It will be interesting to see if any of the other overpaid CEOs, such as Tilton, follow suit.

The cuts are not as drastic as UA and actually show some increase in regional airplane flights. We won't know exactly how it is going to shake out until next week, but I suspect the regional increase will be more Q400.
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Old Jun 5, 08, 6:38 am
  #6  
 
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Here is the release. Wish them the best of luck.

News Release

Contact: Corporate Communications

Houston: 713.324.5080

Email: [email protected]

News archive: continental.com/company/news/ Address: P.O. Box 4607, Houston, TX 77210-4607

CONTINENTAL TO REDUCE CAPACITY, FLEET AND STAFFING

Sixty-seven mainline aircraft and 3,000 positions to be eliminated; CEO and President decline their salaries for the remainder of the year

HOUSTON, June 5, 2008 - Continental Airlines (NYSE: CAL) released to its more than 45,000 employees the following employee bulletin and message from Larry Kellner, chairman and chief executive officer, and Jeff Smisek, president. Continental does not anticipate any further comment until after it has had the opportunity to meet with employees during the next week.

Dear Co-worker:

We've always said that you deserve open, honest and direct communication. This letter and the attached employee bulletin and Q&A are part of that commitment.

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.

While there have been several successful fare increases, those increases haven't been sufficient to cover the rising cost of fuel. As fares increase, fewer customers will fly. As fewer customers fly, we will need to reduce our capacity to match the reduced demand. As we reduce our capacity, we will need fewer employees to operate the airline. Although these changes will be painful, we must adapt to the reality of today's market to successfully navigate these difficult times.

The attached employee bulletin and Q&A outline some of the steps we are taking to address this industry crisis. The situation for all airlines is serious, and the actions we are announcing today are necessary to secure our future. We regret the loss of jobs caused by this crisis, and we will do our best to minimize furloughs and involuntary terminations.

These actions will help Continental survive this crisis. You have our ongoing commitment to keep you informed as the industry evolves and adapts to these unprecedented challenges. It is important that we all keep our focus on working together during these difficult times.



Employee Bulletin No. 9

Continental today is announcing significant reductions in flying and staffing that are necessary for the company to further adjust to today's extremely high cost of fuel. These actions are among many steps Continental is taking to respond to record-high fuel prices as the industry faces its worst crisis since 9/11.

The price of Gulf Coast jet fuel closed yesterday at $151.26 - about 75 percent higher than what it was a year ago. At that price and at our current capacity, our fuel expense this year would be $2.3 billion more than it was last year. That increase alone amounts to about $50,000 per employee.

These record fuel costs have fundamentally shifted the economics of our business. At these fuel prices, a large number of our flights are losing money, and Continental needs to react to this changed marketplace.

Network Changes

Starting in September, at the conclusion of the peak summer season, Continental will reduce its flights, with fourth quarter domestic mainline departures to be down 16 percent year-over-year. This will result in a reduction of domestic mainline capacity (available seat miles, or ASMs) by 11 percent in the fourth quarter, compared to the same period last year.

By the end of next week, Continental will provide details on specific flights and destinations that are subject to reduction or elimination. For additional information on departures and capacity for 2008 and 2009, see Table A.

Co-worker Impact

As a result of the capacity reductions, Continental will need fewer co-workers worldwide to support the reduced flight schedule. About 3,000 positions, including management positions, will be eliminated through voluntary and involuntary separations, with the majority expected to be through voluntary programs.

The company will offer voluntary programs in an effort to reduce the number of co-workers who will be furloughed or involuntarily terminated due to the capacity cuts. Details of these programs will be available next week.

The reductions will take effect after the peak summer season, except for management and clerical reductions, which will begin sooner.

In recognition of the crisis and its effect on their co-workers, Larry and Jeff have declined their salaries for the remainder of the year and have declined any payment under the annual incentive program for 2008.

Fleet Changes

Continental will reduce the size of its fleet by removing the least efficient aircraft from its network. To accomplish this, Continental is accelerating the retirement of its Boeing 737-300 and 737-500 fleets. In the first six months of 2008, Continental removed six older aircraft from service. Continental will retire an additional 67 Boeing 737-300 and 737-500 aircraft, with 37 of these additional retirements occurring in 2008 and 30 in 2009. Given the need for prompt capacity reductions in today's environment, 27 of the 67 aircraft will be removed in September. By the end of 2009, all 737-300 aircraft will be retired from Continental's fleet.

Continental will continue to take delivery of new, fuel-efficient NextGen Boeing

737-800s and 737-900ERs. Overall fuel efficiency will improve measurably as Continental takes delivery of 16 of these aircraft in the second half of 2008 and 18 in 2009 and accelerates the retirement of the older, less fuel-efficient aircraft as mentioned previously.

By the end of the second quarter of 2008, Continental will operate 375 mainline aircraft. Taking into account both the accelerated retirements and scheduled deliveries, Continental's fleet count will shrink to 356 aircraft in September 2008 and 344 aircraft at the end of 2009 (see attached Table B).

--tables attached--

TABLE A: Network Changes

Departures

Estimated Average Daily Departures and Year-over-Year Percent Change


3Q '08
4Q '08
FY 2009


Daily Depts.
% Change
Daily Depts.
% Change
% Change

Mainline Domestic
831
(5.7%)
733
(16.0%)
(9.8%) to (11.8%)

Mainline International
298
0.7%
251
(4.1%)
(1.1%) to 0.9%

Mainline System
1,129
(4.1%)
984
(13.2%)
(7.1%) to (9.1%)

Regional
1,425
3.6%
1,287
(4.1%)
(5.4%) to (7.4%)

Consolidated
2,554
0.0%
2,271
(8.3%)
(6.1%) to (8.1%)



Available Seat Miles (ASMs)

Estimated Year-over-Year Percent Change


3Q '08
4Q '08
FY 2009

Mainline Domestic
(3.0%)
(11.4%)
(3.4%) to (5.4%)

Mainline International
3.4%
(1.6%)
0.0% to 2.0%

Mainline System
0.1%
(6.8%)
(0.7%) to (2.7%)

Regional
7.5%
(1.5%)
(7.4%) to (9.4%)

Consolidated
0.9%
(6.2%)
(1.4%) to (3.4%)



TABLE B: Continental Airlines Mainline Fleet Plan as of June 5, 2008



Net

Net



Total @
Changes
Total @
Changes
Total @


6/30/08E
2H08E
YE 2008E
2009E
YE 2009E

Mainline Jets






777-200ER
20
-
20
2
22

767-400ER
16
-
16
-
16

767-200ER
10
-
10
-
10

757-300
17
-
17
-
17

757-200
41
-
41
-
41

737-900ER *
10
10
20
18
38

737-900
12
-
12
-
12

737-800*
111
6
117
-
117

737-700
36
-
36
-
36

737-300**
47
(24)
23
(23)
-

737-500**
55
(13)
42
(7)
35

Total Mainline
375
(21)
354
(10)
344



* Final mix of new 737-800/-900ERs are subject to change




** Final mix and quantity of 737-300 / 737-500 exits subject to change





This press release contains forward-looking statements that are not limited to historical facts, but reflect the company's
cerealmarketer is offline  
Old Jun 5, 08, 6:44 am
  #7  
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Thanks Cereal I knew someone would get the table with the release.. And thanks for the support.
coairtul is offline  
Old Jun 5, 08, 6:50 am
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I have seen the ""writing on the wall". Seatmaps have been weak for future travel, except in the strongest markets. There is a point when airfares get too high that the majority start scaling back their travel plans.

In CO's case - they are really only shutting down the 733 & 735 which we will not miss. These were the most inefficient and likely used for some of the weaker markets. Passengers are going to have to accept reduced frequency, and some cities are going to lose mainline jets.
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Old Jun 5, 08, 6:58 am
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It will still be interesting to see which destinations will be cut in Europe! The 752s aren't really fuel efficient either....
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Old Jun 5, 08, 7:02 am
  #10  
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I formatted it up a bit. As predicted, CO is accelerating the retirement of the 737 classics and they slowed down delivery of the new 738/739ERs. Nothing all that surprising.


TABLE A: Network Changes

Departures

Estimated Average Daily Departures and Year-over-Year Percent Change


Code:
 3Q '08                     4Q '08                   FY 2009
 
 
 Daily Depts. % Change Daily Depts. % Change % Change
 
Mainline Domestic
 831 (5.7%) 733 (16.0%) (9.8%) to (11.8%)
 
Mainline International
 298 0.7% 251 (4.1%) (1.1%)  to 0.9%
 
Mainline System
 1,129 (4.1%) 984 (13.2%) (7.1%) to (9.1%)
 
Regional
 1,425 3.6% 1,287 (4.1%) (5.4%) to (7.4%)
 
Consolidated
 2,554 0.0% 2,271 (8.3%) (6.1%) to (8.1%)
 


Available Seat Miles (ASMs)
 
Estimated Year-over-Year Percent Change
 
 
 3Q '08 4Q '08 FY 2009
 
Mainline Domestic
 (3.0%) (11.4%) (3.4%) to (5.4%)
 
Mainline International
 3.4% (1.6%) 0.0% to 2.0%
 
Mainline System
 0.1% (6.8%) (0.7%) to (2.7%)
 
Regional
 7.5% (1.5%) (7.4%) to (9.4%)
 
Consolidated
 0.9% (6.2%) (1.4%) to (3.4%)
 


TABLE B: Continental Airlines Mainline Fleet Plan as of June 5, 2008


 
 Net Net Total @ Changes Total @ Changes Total @
 
 6/30/08E 2H08E YE 2008E 2009E YE 2009E
 
Mainline Jets
 
777-200ER
 20  - 20  2  22 
 
767-400ER
 16  -  16  -  16 
 
767-200ER
 10  -  10  -  10 
 
757-300
 17  -  17  -  17 
 
757-200
 41  -  41  -  41 
 
737-900ER *
 10  10  20  18  38 
 
737-900
 12  -  12  -  12 
 
737-800*
 111  6  117  -  117 
 
737-700
 36  -  36  -  36 
 
737-300**
 47  (24) 23  (23) - 
 
737-500**
 55  (13) 42  (7) 35 
 
Total Mainline
 375  (21) 354  (10) 344
sbm12 is offline  
Old Jun 5, 08, 7:12 am
  #11  
 
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Originally Posted by cova View Post
I have seen the ""writing on the wall". Seatmaps have been weak for future travel, except in the strongest markets. There is a point when airfares get too high that the majority start scaling back their travel plans.

The situation is getting pretty bad. I definitely think that we're reaching the point where many people are going to stop flying again. In a short time, a simple short round trip between CLE and EWR in economy has increased from like $160 to at least $350. I'm not sure if overall loads on a route like this are suffering yet, but I definitely know people who want to make this trip and are either not doing it, or just deciding to drive the 6-7 hours.
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Old Jun 5, 08, 7:17 am
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While it remains a true competitive advantage in the North American marketplace, can the elimination of complementary food on board, be far behind?? I realize CO owns Chelsea Catering which gives it a definite advantage, but how much longer can they really afford to hold out on this one?
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Old Jun 5, 08, 7:21 am
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Back in 2000-2002 - a typical trip during the week CLE-EWR or CLE-BOS was just over $1000 - no matter how far ahead it was booked. It looks like we are heading back to that time.

Best of luck to CO while they weather this storm.
COFlyerCLE is offline  
Old Jun 5, 08, 7:24 am
  #14  
 
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On the bright side, we may be heading back to the good ol' days when there were actually empty middle seats on flights. At a minimum, fewer families with children will be flying.
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Old Jun 5, 08, 7:38 am
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Originally Posted by supermasterphil View Post
It will still be interesting to see which destinations will be cut in Europe! The 752s aren't really fuel efficient either....
My thoughts exactly. I am guessing, TXL, LIS, CGN, & MAN could all be on the chopping block.
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