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The Honolulu Advertiser
Posted on: Wednesday, August 21, 2002

Continental cutting back

By Martha McNeil Hamilton
Washington Post

Continental Airlines announced yesterday that it will reduce service and begin passing on more of its costs to passengers as fees for services now included in the ticket price.

In doing so, Houston-based Continental becomes the most recent of several airlines to announce cuts aimed at reducing huge losses in the financially battered airline industry. American Airlines announced earlier this month that it will revise its hub system, ground planes and cut its work force by approximately 7,000 jobs. United and US Airways have also cut back service.

Industry analysts said yesterday that overall reduction of capacity in the industry may make it possible for the airlines to return to profitability sooner than anticipated. The airline industry, which was in bad shape before Sept. 11, was hammered after the terrorist attacks, finishing the year with $7 billion in losses.

Continental chairman Gordon Bethune said that "we need to do some aggressive belt tightening," to avoid more drastic cuts or bankruptcy. US Airways has filed for bankruptcy protection and United has said it may be forced to do so as well.

Continental said it will impose a $20 fee for all domestic paper tickets, even those sold by travel agents. It also said it will impose new fees for services used by low-fare customers, but did not spell out the details.

Henry Hardeveldt, an industry analyst with Forrester Research, said low-fare travelers may have to pay for meals or for traveling with more than one bag or may have to pay more to accrue frequent-flier miles.

"I think that we, as customers, will start seeing the airlines behave more like hotels. The ticket gets you the seat, but if you want something else, you have to buy it," he said, just as hotel customers pay for room service and other amenities.

Continental said it will remove 11 additional aircraft from its schedule, bringing total reductions since last September to 60. By next August, the peak month for domestic flights, the airline's domestic jet capacity will be 17 percent below its level in August 2001.

Last week, an airline official said the carrier is not considering reducing its Hawai'i flights. Continental has four daily flights from the Mainland to Hawai'i and one from Guam to Hawai'i, and more than 250 employees in the Islands.

Although Continental didn't say how many jobs it hopes to eliminate, it said it hopes to achieve the reduction through the combination of a hiring freeze, retirements, voluntary leave and attrition.

Continental said it expects its measures will save more than $80 million this year and $350 million a year once fully implemented. The market reacted favorably, with Continental's share price closing at $9.10, up 73 cents.

Morningstar Inc. equity analyst Jonathan Schrader said Delta and Northwest airlines may also weigh in with cuts in service that would reduce overall industry capacity.