Continental Plans $500M Labor Cuts

Continental Airlines Inc.'s planned $500 million in labor cuts announced late Thursday are a necessary step, given the airline industry's current financial crunch, analysts said.

"It's not a surprise — they've been saying for some time they need to cut costs," said Ray Neidl, airline analyst with Calyon Securities. "It was a necessary step, but it's something that is difficult to do to your employees."

Continental said Thursday it plans to cut $500 million in payroll and benefit costs by Feb. 28. The Houston-based carrier is the last of the nation's hub-and-spoke airlines to ask its employees for wage and benefit cuts.

Company spokesman Dave Messing said Continental doesn't plan any layoffs as part of the labor cost cuts.

US Airways Group Inc. and UAL Corp.'s United Airlines, both operating under Chapter 11 bankruptcy protection, as well as AMR Corp.'s American Airlines, have already enacted pay cuts so far this year.

Continental may have an advantage over some of its peers though, as the company is thought to have a better relationship with its labor groups than most big carriers.

"There has been a good dialogue between management and labor at Continental, and the employees can see what's happening (in the industry)," Neidl said.

Indeed, the union representing Continental's pilots issued a statement after the cuts were announced saying they understood "the volatile nature" of the industry.

But the union said it must first determine whether the concessions are truly needed before the pilots would consider approving them, and the pilots need to be assured they will get something in return for their sacrifices.

"If the need is established, this process must include securing appropriate returns for the pilots' investment when the airline returns to profitability," Capt. Jay Panarello, chairman of Continental's master executive council for the Air Line Pilots Association, said in a statement.

Messing said the company decided to seek the wage and benefit cuts "as a last resort" and the cuts come on top of $1.1 billion in annual reductions the company announced earlier this year.

Continental's Class B shares gained 17 cents to close at $11.35 Thursday on the New York Stock Exchange.