Continental Airlines became the latest U.S. airline to unveil plans to slash its overall capacity by 11% and cutting more than 3,000 employees. In a unique twist, Continental’s CEO and its president both said will not take salaries or incentive pay the rest of the year. Continental said it will announce next week which flights and destinations it will reduce or eliminate.
Continental also renegotiated its capacity deal with low-cost carrier ExpressJet. Its new deal calls for ExpressJet to continue flying the 205 regional jets it currently operates for Continental in the first year but allows Continental to scale back the fleet by 15 after that period. The new seven-year deal also allows ExpressJet to fly for other carriers and to continue the consideration of strategic alternatives, including the company's possible sale.
In a Wall Street Journal article, Harlan Platt, a professor of finance at Northeastern University in Boston specializing in airlines, says he expects airlines to continue cutting capacity and staff as oil and fuel prices rise. He says oil prices need to be at $70/barrel for most airlines to break-even or begin making a profit.
"It's not a situation where the airlines will go bankrupt next month, but they have got to begin conserving their cash," Platt says.
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