"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. We need to make changes in response," Larry Kellner, Continental's chief executive, and Jeff Smisek, its president, wrote in a letter to Continental employees released Thursday.
Crude oil futures crested at $135 a barrel last month -- more than twice the price of a year ago -- sending the cost of jet fuel up sharply.
To counter its higher fuel bill, Continentalsaid it would cut 3,000 of its 45,000 staff, and retire 67 older single-aisle Boeing 737 planes by the end of 2009, on top of the six planes it has already pulled out of service this year.
The airline said it would replace some of those jets with deliveries of new, more fuel-efficient 737s. Its mainline fleet of about 375 planes would shrink to about 344 by the end of next year, an overall cut of about 8 percent.
It said it would cut flights after the summer season, reducing domestic capacity -- or the number of seats for sale on U.S. flights -- by about 11 percent in the fourth quarter.
Continental plans to cut domestic flights about 16 percent in the fourth quarter, over the year before, but said it would not announce which destinations will be hit until late next week.
It said it would provide more details on the job cuts next week after discussing them with employees. The airline hopes most of the cuts will be voluntary.
The reductions will take effect after the peak summer season, Continental said, although some management and clerical jobs will be cut sooner.
Continental's shares, which have fallen 35 percent so far this year as surging oil prices have ravaged the industry, rose about 3 percent to $15 in premarket trading, from their close at $14.50 on the New York Stock Exchange on Wednesday.