In the wake of large second quarter losses, Houston-based Continental Airlines announced plans today to lay off 1,700 employees, further cut capacity on some routes and raise baggage check and reservation fees.

The airline hopes the changes will boost revenue and offset the $213 million loss it suffered in Q2 2009.

In addition to the 1,700 job cuts announced today, which equate to 3.4 percent of its workforce, Continental is also going ahead with previous plans to lay off 500 reservations agents and furlough 700 flight attendants.

Baggage fees will be raised by $5 apiece and will take effect immediately for flights booked on or after August 19. A first checked bag will now cost $20 and $30 for the second. The cost to make a reservation over the phone will also rise by $5, to $20. It’s estimated that the fees will help the airline raise at least $100 million over the next year.

Want to know which airlines aren’t disappointing customers? Read JD Power and Associates Releases Latest Airline Satisfaction Survey.

Despite the $762 million in savings it has experienced as jet fuel prices have stabilized, Continental has still suffered revenue declines of $918 million from a year ago, resulting in its net loss.

The H1N1 flu, which caused leisure travelers to avoid Mexico in droves, cost the airline an estimated $50 million. And the decline in business travel has also dealt a severe blow, as companies have slashed their travel budgets and increasingly shifted to videoconferencing.

Overall, the airline saw traffic fall by 6.4 percent in the second quarter of 2009 compared to the second quarter of 2008. To compensate, the airline has cut capacity by 7.8 percent over the last few months, mostly in international routes.

Other airlines are feeling similar pain and making similar moves.

United Airlines reported a small Q2 profit of $28 million even as revenues fell 25.2 percent. As a result it is planning to cut capacity on international flights by 7 percent in the second half of 2009, which will reduce the number of total seats available at the airline by a plan-busting 11 percent.

Financial woes are also changing airports, check out Clear Pass Airport Lanes Shut Down Amid Financial Woes. For more on airlines: As Other Airlines Struggle, AirTran Posts Q1 Profit

Southwest also posted a Q2 profit—after three unprecedented (for Southwest) quarters of losses—but the airline says that it may not be able to repeat the performance in the third quarter. It is still planning to lay off 1,400 workers as of July 31, mostly through voluntary buyouts. Southwest also plans to cut capacity by a further 5 to 6 percent this year.

Even ultra-budget Irish carrier Ryanair, which has seemed to be recession-proof up until now, announced today that it will trim capacity at London’s Stansted airport by 40 percent this winter. The airline normally has 40 planes based at Stansted, its main London hub, but will only have 24 until March.

More about Ryanair: Will Ryanair Really Charge Passengers to Use Bathrooms? and Ryanair to Take Its Budget Airfares Transatlantic?

Spokesmen for United, Southwest and Continental think that demand for airline seats has probably bottomed out, but none predict that a rebound will occur before mid-2010.

According to the U.S. Bureau of Transportation Statistics, employment at all US airlines was down by 6.8 percent in May 2009 compared to May 2008, and airlines carried 5.6 percent fewer passengers in April 2009 compared to April of last year. This represents the 14th straight year-over-year decrease.

By Karen Elowitt for PeterGreenberg.com.

Related links: USA Today, Reuters, Houston Chronicle, Philadelphia Inquirer, Wall Street Journal

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