Continental, United Retrench to Fight Fuel Prices

With oil the far side of $120 a barrel, the price of Jet A fuel is the single biggest problem (please, stop calling problems “challenges”) for commercial airlines. Many carriers have fought it with surcharges and reductions in staff. This past week, Continental and United went even farther, cutting capacity by retiring older jets. And yes, there will be more job cuts.

Continental is slashing 3,000 jobs, including management positions, but the company says the reduction of its 45,000 employees to 42,000 will involve a large number of buyouts. Chief Executive Larry Kellner and President Jeff Smisek are making a symbolic gesture (and good for them) of refusing the rest of this year’s salary and bonuses.

Dow Jones Newswire reported yesterday, “Continental is accelerating the retirement of Boeing 737-300s and 500s. Six planes were taken out of service in the first half of this year, and another 67 aircraft are now slated to be removed - 37 this year and 30 in 2009. Most of the remaining cuts for 2008 will happen in September, and by the end of next year Continental will have stopped flying 737-300s, a less fuel-efficient plane.”

Over at United, another 1,100 jobs are going. Ashley Heher of the Associated Press reported yesterday, “United said it plans to ground its entire fleet of 94 Boeing B737s as well as six of the company's 747s, the oldest and least fuel-efficient planes. United is also scrapping its coach-only ‘Ted’ service and reconfiguring those planes to include first-class seats.” The ambition is to scale back capacity in the US by 17-18% and international capacity by 4-5% because these routes are more lucrative due to a lack of competition.

Jet fuel has a higher octane content that automobile gas, 100 to 80, and as a result, it has historically cost more than auto fuel. That means that it costs as much as $7.50 a gallon in places. It’s up 75% since the beginning of the year. Each $1 increase per gallon tacks on $465 million in fuel expenses for passenger and cargo airlines. Eventually, the belts won’t tighten anymore. The only question is how much longer this can go on.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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