HOUSTON — Unless Continental Airlines achieves $500 million in wage and benefit concessions from its employees by Feb. 28 the airline faces a liquidity crisis that threatens the company’s future.

Larry W. Kellner chairman and chief executive officer for the airline said Continental Micronesia employees are expected to contribute to the cost-cutting target set by the company. He told the Journal "On the $500 million in wage and benefit reductions that we’re looking for it’s companywide so Continental Micronesia is just like every other part. And so everybody at Continental Micronesia has got a piece of that. Because they’re a relatively small piece of the total company they’ll also be a relatively small piece of the total cuts."

Speaking in Houston on Jan. 17 at a press conference with international media Kellner said "Continental Micronesia which doesn’t include our Tokyo-U.S. or our Hong Kong-U.S. service is a little less than 5% of our system."

The effort comes as part of a larger measure to reduce operational expenses by a total of $1.6 billion annually. Continental is negotiating with employee work groups to achieve the targeted cost cuts. In a recent filing with the Securities and Exchange Commission the company stated "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."

As of Jan. 20 the company had "finalized changes to wages work rules and benefits for executives and U.S.-based management and clerical reservations food services airport and cargo agents and customer-service employees totaling $169 million."

Jeff Smisek president of Continental said at the conference "Right now what we have at Continental is a continuing series of losses since 2001. We have got a strong cash position currently but if you have hundreds of millions of dollars in losses every year you can find yourself over time reducing the cash to a level that is insufficient to operate the airline. With that $500 million under our belt I’m not going to tell you that we’ll instantly return to profitability. That’s a function of a lot of variables including fuel. But we’ll certainly avert what would otherwise be a looming cash crisis for ourselves."

Different from many other units within the company Continental Micronesia continues to generate a profit for the company. Kellner said his company is "very committed to Continental Micronesia. Continental Micronesia makes money for us. I would not anticipate any kind of significant changes. As we go through our cost-cutting measures it’s not likely that we’ll do any kind of reduction in service with respect to any of the islands."

In fact as earlier announced (See "Clear Skies Ahead " in the 4th Quarter 2004 Guam Business) Continental Micronesia will launch a route between Hiroshima and Guam with two flights in April and two more planned for July. According to the airline the demand for trips to Guam is high in the Chugoku and Shikoku regions which led to the decision for additional routes. A direct air service is expected to further increase Japanese visitors.

Aside from this the company does not foresee overwhelming growth in demand for the region and travelers should not expect major increases in service. "Guam is for us a hub in sort of a global sense but it doesn’t have the flows across it that say Houston or New York would have " Smisek said. Despite upgrades to Guam International Airport that would increase capacity and accommodate larger aircraft such as the larger Boeing 777 the company will not significantly increase operations regionally at present.

"You know — again at this point short-term — we’re really focused upon that U.S.-to-China route authorization. But we know we have this tremendous asset in Micronesia so once we can build on that those are obviously the first places that you begin to think about as you go forward as we succeed in that market " said James Compton executive vice president of marketing for Continental. For the foreseeable future Continental will concentrate on serving routes between either Beijing or Shanghai to New York. While the company was pursuing authorization for routes to both cities in China it only expected to be awarded access to one of the two destinations. In preparation Continental has plans to open an office in Guangzhou later in 2005.

Smisek said Continental would welcome improvements to the airport’s facilities "As long as airports don’t get too far ahead of themselves and drive their costs up where it becomes unattractive for people to serve that airport."

While Continental Micronesia continues to operate in the black the company has no plans to reduce fares for regional travel. "What’s good for Guam is to have Continental airlines committed to Guam and Continental Airlines being able to make a profit in Guam in the long run. If Continental Micronesia were consistently losing money we would pull down service in Guam and there would be much less service. We need to charge a fare that will permit us to earn a profit. We don’t by any means make huge profits in Guam. Quite frankly I wish we could but we don’t. We do charge fares that are competitive in that market as we charge fares in the United States that are competitive in that market " Smisek said. MBJ