Continental Airlines and Southwest Airlines, two of the healthiest major U.S. carriers, said Thursday that record high fuel prices led to disappointing quarterly profits, and both airlines reduced growth plans. Continental's loss and Southwest's decline in profit reflect the biggest challenges facing the airline industry—soaring fuel costs and a weakening U.S. economy. Difficult market conditions may pressure Continental to participate in a merger to better compete with rivals Delta Air Lines and Northwest Airlines, which on Monday said they planned to combine to form the world's biggest airline by traffic volume. Continental and United Airlines reportedly have been in merger talks for months. Continental said Thursday it will reduce domestic capacity by 5 percent starting this autumn and take another 14 Boeing 737s out of service. That would be in addition to the 34 airplanes that already were planned to be removed from service in 2008 and 2009. “In this fuel environment, we must reduce our domestic capacity to help reduce our losses in the domestic system,” Continental president Jeff Smisek said in a statement. Continental, the fourth-largest U.S. carrier, reported a net loss of $80 million in the first quarter, compared with a year-earlier profit of $22 million. Despite the difficult market conditions, the airline's revenue increased 12.3 percent to $3.6 billion, helped by international growth, fuel surcharges, and fare increases. Southwest on Thursday reduced growth plans and posted lower quarterly profits as the weak U.S. economy and high fuel costs hurt the leading U.S. discount airline. “We cannot ignore the threat of volatile and unprecedented jet-fuel prices,” chief executive Gary Kelly said in a statement. “We will continue to take steps to restore our profit margins, including an ongoing rigorous review of our flight schedule to eliminate non-productive flying.” Southwest said it would increase its fleet in 2009 by no more than 14 aircraft, half its previous plan. The airline's first-quarter net profit fell to $34 million from $93 million in the same period a year ago. Revenue rose 15 percent to $2.53 billion.
