Continental Finalises ‘Reductions’ Detail

Continental Airlines today
issued the following bulletin to update its employees on its ongoing
efforts to return to profitability: Continental Airlines announced today that it has finalized changes to
wages, work rules and benefits for most U.S.-based management and clerical
employees as part of its previously announced $500 million reduction in
annual labor costs. These reductions, which total $48 million annually,
will take effect Feb. 28, 2005, and involve changes to wages and salaries,
FLEX credits, vacation and holiday time, sick leave, and the 401(k)
savings plan.

The management and clerical group, which includes the company’s 47
officers, is leading cost reductions by being the first work group to
finalize details.

“We realize that these changes will be difficult and painful for our
management and clerical co-workers,” Gordon Bethune, chairman and CEO
said. “By facing these difficult decisions now, we can ensure
Continental’s long- term ability to survive.”

Continental is the last of the six major hub-and-spoke carriers to seek
companywide pay and benefit reductions and work rule changes since
September 2001. Continental has already implemented $1.1 billion in
cost-savings and revenue enhancements without labor rate reductions.

Salary and wage reductions

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Individual wage reductions are being implemented on a progressive scale,
with lesser-paid employees receiving the smallest cuts. Managers will
inform affected employees of their individual wage reductions, and
beginning Dec. 16, most management and clerical employees will be able to
view details of their specific wage and salary reductions on the Intranet.

As previously announced, Larry Kellner, president and COO, will reduce
both his base salary and his annual and long-term performance compensation
by 25 percent. Executive Vice President Jeff Smisek, Marketing Executive
Vice President Jim Compton, Executive Vice President and CFO Jeff Misner
and Operations Executive Vice President Mark Moran will reduce both their
base salaries and their annual and long-term performance compensation by
20 percent. Although no employee will be asked to reduce any 2004
compensation, Kellner and Smisek also will decline to accept their annual
bonus if earned for 2004.

Continental is modifying the Working Together Guidelines to reflect the
changes, and they will be available online before year-end and through the
Human Resources group.

FLEX credit program

Continental is eliminating the FLEX credit program, effective Dec. 31,
2004. Formerly, these FLEX credits provided management and clerical
employees an additional 2 percent of their salaries. To offset the loss of
flex credits in January and February 2005, Continental will provide
employees a 2-percent salary credit for these two months.

Vacation

Regular vacation time accrued in 2004 for use in 2005 will remain the
same. The new maximum vacation time will be four weeks for accruals
beginning in 2005 for use in 2006.

 

The company will continue to offer management and clerical employees the
ability to purchase an extra week of vacation through payroll deduction.

Holidays

Continental has eliminated four of its 10 paid holidays in 2005 for
management and clerical employees: the day after Thanksgiving, Christmas
Eve and the two floating holidays.

Sick leave

Effective Feb. 28, 2005, the sick leave accrual rate for full-time
employees will be six hours for each month of service, subject to current
accrual caps. Part-time employees will accrue three hours of sick leave
for each month of service. In addition, for each sick leave absence,
employees will receive sick pay from their sick bank equal to 70 percent
of their regular pay for the first three days of the absence. For sick
leave days in each absence beyond the initial three days, employees will
receive sick pay from their sick bank equal to 100 percent of their
regular pay.

401(k) savings plan

Effective Feb. 28, 2005, Continental will suspend the company match for
the 401(k) savings plan for management and clerical employees.

Enhanced profit-sharing programs

As previously announced, Continental will launch enhanced profit-sharing
programs that will enable eligible employees to share more significantly
in the company’s future success.

Continental has terminated the previous profit-sharing plan. Continental
will announce the specifics of the enhanced profit-sharing programs in the
first quarter of 2005.

Benefits that will continue

Continental will continue to offer a broad spectrum of benefits to
management and clerical employees, and those benefits are not expected to
change significantly for 2005.

—Continental Retirement Plan—Health and welfare plans (medical,
dental, vision and life insurance)—Employee pass travel privileges—
Employee Stock Purchase Plan—On-time bonus program—Perfect
attendance program Ongoing discussions

Continental continues to work with each of its other work groups to
develop a package of wage and benefit reductions and work rule changes
appropriate for each work group, as part of its previously announced $500
million of annual labor cost savings. Continental expects that the savings
for each work group will be effective Feb. 28, 2005.
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