Continental FCU Stays the Course as Airline Stacks Up Big Losses
The $182 million credit union has seen an increase in loan workouts and debt restructuring as a result of Continental Airlines' troubles including the 1,700 job cuts the carrier announced on July 21, said Tom Martin, president/CEO of the Tempe, Ariz.-based cooperative. Members affected by the airline's financial struggles, other job losses and the sluggish economy are being offered relief through temporary interest rate reductions, 0% share certificate loans and advice for those who are considering filing for bankruptcy.
"Our long term hope is that the industry rebounds and members are able to regain employment," Martin said.
Continental Airlines' second-quarter results were adversely affected by significant declines in high-yield traffic as many business travelers curtailed travel or purchased economy tickets due to the weakened economy, the company said in a July 21 statement. In addition, fears of the H1N1 virus reduced second-quarter consolidated passenger revenue by an estimated $50 million. While fuel expenses declined $762 million (46.1%) in the second quarter compared to second-quarter 2008, revenue also dropped $918 million compared to the same period.
As a result, the carrier said it will eliminate approximately 1,700 positions across the company, including management and clerical jobs. This is in addition to the previously announced elimination of 500 reservation agents. Continental is also offering employees voluntary programs to minimize the number of involuntary furloughs and reductions in force. The carrier has increased the domestic checked baggage fee by $5 to those who do not prepay online and who make their reservations online. The aim of the fee increases and job cuts is to achieve approximately $100 million in annual benefits by 2010.
"While the unit revenue decline appears to be bottoming out, it is doing so at low levels, and we must take aggressive steps to increase revenue and reduce costs," said Continental Chairman/CEO Larry Kellner, who will leave the company on Jan. 1, 2010 to head a private investment firm in Houston. Jeff Smisek, Continental's president and chief operating officer, will succeed Kellner, the company announced on July 16.
Roughly two-thirds of the credit union's 26,000 member base are Continental Airline employees and their relatives, Martin said. The good news is members are increasingly willing to work with the credit union rather than ignore their debts, he added. While Continental FCU's trade, industry and profession charter allows it to serve the entire airline industry, the field of membership has some drawbacks.
"It does leave us a little bit vulnerable, given the industry we are in," said Martin, who took the helm at the credit union in March.
It was around this time last summer that Continental Airlines said rising fuel costs would force the carrier to eliminate 3,000 jobs. Kellner and Smisek decided not to take salaries for the second half of 2008.
Some in the industry are comparing today's airline setbacks to those seen after the 9/11 attacks. Back then, President Bush signed rescue legislation that gave $15 billion to the struggling airline industry. CUNA President Dan Mica hand delivered letters to the White House and legislators urging them to consider passage to reinvigorate the troubled air transportation system at the time.