Continental joins American and United in announcing significant job cuts and capacity reductions in the coming year. The airline said that it will cut about 3,000 jobs, and reduce mainline departures by 16% in the 4th quarter of this year (that represents about 11% of the available seat miles). Most of that will come from domestic mainline routes (international will increase a bit in Q4 and decline next year). And in a classy move, the CEO and President will not take salaries or bonus for the rest of the year.
I said it yesterday, and I’ll say it again: shrinking capacity this drastically is not an easy decision and one that will have further implications down the line. Less capacity will drive up fares, which are already much higher than they were last year. Airlines are beginning to see changes in leisure travel due to these higher fares. Plus, as I said, hub-and-spoke carriers need spokes feeding the hubs. When you start shrinking significantly, the economics of the whole operation start to break down. I’m not saying that this reduction will let the airlines hit that point, but it’s something to look for.
I’ve seen a number of articles comparing this time in the airline industry to the period after 9/11, but that was different – that was a demand issue. And airlines were able to stimulate demand with low fares (granted they paid for that in a big way later, but they got people on those planes). This is a cost issue, and there’s only so much cost you can cut out of the operation. Airlines may be able to sustain 1 more round of these types of cuts but that’s about it – here’s hoping the fuel prices come down before it’s too late.