DALLAS – Continental Airlines Inc. (CAL) said Thursday it must cut $500 million in wages and benefits by Feb. 28 or face a liquidity crisis that could result in layoffs and reductions in its fleet.
Like most other U.S. carriers, Continental has been losing money for three years and the No. 5 U.S. carrier is trying to cut costs to deal with rising fuel costs and fare wars that have cut into revenue.
Shares of Continental, already battered in the past two days, fell 75 cents or 6.7 percent, to $10.46, on the New York Stock Exchange (search).
Houston-based Continental said that after labor-cost savings achieved by competitors — including carriers operating under bankruptcy protection — its labor costs per mile of flying would be the second-highest among major U.S. carriers.
Even after the $500 million in concessions, Continental said its costs on a per-mile basis would remain higher than many of its competitors.
"We expect to lose hundreds of millions of dollars in 2005 under current market conditions," Continental said in a filing with the Securities and Exchange Commission (search). "Failure to achieve $500 million in annual wage and benefit cost reductions by February 28, 2005 could ultimately result in the company having inadequate liquidity to meet its obligations."
"If we do not obtain the $500 million in annual reductions, we may be forced, like many of our struggling competitors, to reduce our fleet, furlough more employees, and obtain larger wage and benefit reductions, and may potentially lose customers and revenue," the company said.
Continental added that without labor savings, its ability to raise money would be uncertain and its board wouldn't approve delivery of new aircraft.
In November, Continental told employees of its plan to cut $500 million in labor costs. As of Dec. 16, the airline said it had achieved only $70 million of the cuts by winning concessions from employees in reservations, food service and other groups.
Last year, Continental lost $157 million through Sept. 30, and analysts expect another large loss in the fourth quarter.