After trying various other ways to meet the high costs of the fuel, Continental on Thursday announced significant reductions in flying and staffing that company deems necessary for further adjusting to today's extremely high cost of fuel.     

"The airline industry is in a crisis. Its business model doesn't work with the current price of fuel and the existing level of capacity in the marketplace," chief executive Larry Kellner said. "We need to make changes in response."     

These record fuel costs have fundamentally shifted the economics of our business. At these fuel prices, a large number of our flights are losing money, and Continental needs to react to this changed marketplace, Kellner said.     

Most of the changes will start in September, at the conclusion of the peak summer season. Continental will reduce its flights, with fourth quarter domestic mainline departures to be down 16 per cent year-over-year.

This will result in a reduction of domestic mainline capacity by 11 per cent in the fourth quarter, compared to the same period last year. By the end of next week, Continental will provide details on specific flights and destinations that are subject to reduction or elimination.     

Continental expects voluntary departures to account for a majority of job losses, but said there will be layoffs. Some management positions will also be affected.

The announcement came a day after UAL Corp's United Airlines announced it would cut up to 1,100 more jobs, ground 70 airplanes and drop its coach-only service, named Ted.

Continental will reduce capacity by retiring 67 of its most fuel-inefficient jets through the end of next year, although planned deliveries of more economical planes will mean a net loss of 31 jets over that time. Officials said they would detail which flights would be trimmed by next Friday.

Kellner and company's president Jeff Smisek, in a letter, told employees a logical -- but unavoidable -- chain of events is forcing airline executives' hands, thanks to fuel prices.

"As fares increase, fewer customers will fly. As fewer customers fly, we will need to reduce our capacity to match the reduced demand. As we reduce our capacity, we will need fewer employees to operate the airline," they said.

Continental plans to retire 27 of its Boeing 737-300 and 737-500 models by September and 40 more by the end of 2009, eliminating the 737-300 from its line-up entirely.

As of now, the carrier said, it is still taking delivery of 16 more-efficient Boeing 737-800s and 737-900ERs this year and 18 more next year.

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