Continental Airlines, the nation's eighth largest passenger carrier with service to more than 70 U.S. cities, filed for reorganization under federal bankruptcy laws last night, suspended its domestic flights and said it would reopen slimmed-down service to 25 U.S. cities Tuesday.
Continental's international schedule, which includes flights to Mexico, South America and the South Pacific, will not be affected, the airline said.
The action came, Continental officials said, after its pilot and flight attendant unions declined a company proposal to reopen their contract and accept company stock in exchange for $150 million in cost concessions. Continental has been operating despite a strike by its mechanics since Aug. 13.
Continental, under pressure from new, low-fare, non-union airlines, claims that it has lost nearly $500 million since 1979 and that the bankruptcy decision was essential so it can reorganize under the protection of the bankruptcy laws.
In a statement released during a news conference at the airline's headquarters in Houston, Continental chairman and president Francisco Lorenzo said, "We intend implementing a strategic plan that can make Continental Airlines the largest of the low-cost airlines."
An unknown number of passengers were left holding Continental tickets at U.S. airports last night. "We did everything possible today to minimize passenger inconvenience," Lorenzo said. He said tickets will be honored for Tuesday flights to cities still on the Continental schedule.
Continental Flight 382 out of Denver arrived at Dulles Airport last night, but its continuation to Baltimore was canceled.
The Continental bankruptcy is the second involving a major airline since Congress deregulated the industry in 1978. Some analysts think there will be more bankruptcies or mergers to avoid bankruptcy as airlines adjust to deregulation and strive to recover from a recession that has given them three consecutive years of record losses.
After the first six months of this year, only four of the nation's top 10 carriers were showing a profit. Five of the other six have been on the worry list for industry analysts. Continental headed that list, but it also included Eastern, Trans World, Western and Republic. Delta, generally regarded as financially healthy, nonetheless lost $65 million in the first six months of this year.
In recent weeks, Eastern, Western, Republic and TWA have sought major salary concessions from their employes, or imposed them where they could.
On the other hand, industry leaders United and American are strong this year. And Pan American, after a major route and labor restructuring, is setting records on its international flights.
Northwest Airlines has also remained in the black, and two once-small regional carriers--Washington-based USAir and Piedmont--are healthy and expanding.
In the last three years, the U.S. airline industry has posted losses of $221 million, $454 million and $733 million.
In the first quarter of this year, the industrywide loss was a record $650 million (although the first quarter is almost always in the red). By the end of six months, the loss had been trimmed to $520 million, and analysts believe the industry as a whole will make money this year.
Continental has struggled as visibly as any of the airlines. Its losses totaled $60.4 million in the first six months of this year, and company officials attributed the problems to high labor costs.
In 1982, according to Continental papers, its labor costs were 33 percent of its operating budget. At Southwest Airlines, a competitor, the figure was 26.2 percent and at Muse Airlines, another regional competitor, 12 percent.
Figures like that, Continental officials said, led to the airline's decision in August to continue operating during the mechanics strike. But revenues did not pick up to extent desired, and last week Continental offered the rest of its employes up to 35 percent of the company's stock in exchange for $150 million in cost concessions.
Continental has about 12,000 employes concentrated in Houston, Denver and Los Angeles.
The Air Line Pilots Association and the Union of Flight Attendants declined the offer Friday night, and refused to discuss it yesterday morning, company officials said. That was when the decision to seek protection under Chapter 11 of the bankruptcy law was taken by the Continental board.
Continental said the "New Continental" that opens for business Tuesday will operate flights on about 40 percent of the present system but use only 35 percent of the present workforce. Cities to be served include Washington at both National and Dulles airports.
Meanwhile, Continental tickets will be accepted for standby travel on Republic and Southwest flights, company spokesmen said yesterday.
Continental, with a proud tradition particularly in the West, is a subsidiary of Texas Air Corp., which also owns New York Air. The Continental name was retained when it was merged in 1982 with another Texas Air subsidiary, Texas International.
The economic deregulation of the airlines was mandated by Congress in 1978, and rules have been lifted gradually. In the past two years, airlines have been able to decide where they will fly and what they will charge without checking first with Uncle Sam.
That has created a competitive situation where the nimble survive, but where the wrong move can spell doom. New airlines, such as People Express and Muse, have employed trim budgets and no unions to start service at cut-rate fares without so much as an if-you-please from the Civil Aeronautics Board.
Continental said that had it "been able to reduce its labor costs to 19 percent of its total operating expenses, it would have made $71.3 million in 1982 instead of losing, as it actually did, $135.5 million."
Continental said it will again be serving the following cities beginning Tuesday:
Austin; Baton Rouge; Burbank, Calif.; Chicago; Cleveland; Corpus Christi, Tex.; Denver; Fort Lauderdale; Houston; Kansas City; Lafayette, La.; Los Angeles; Minneapolis-St. Paul; New Orleans; New York; Oklahoma City; Orlando; San Antonio; San Diego; San Francisco; Seattle-Tacoma; Tampa-St. Petersburg; Tulsa; Washington, and Wichita, Kan.