Continental CEO: Growth Coming From European Routes >CAL Thursday October 28, 10:43 AM EDT NEW YORK (Dow Jones)--The current level of taxes and fees paid by airlines isn't sustainable, Continental Airlines Inc. (CAL) Chief Executive Gordon Bethune said Thursday. Speaking at the Society of Airline Analysts meeting, Bethune explained the industry will pay $14 billion in taxes and fees "in addition to income taxes" to the federal government this year. Continental will pay about $1 billion, he said. That includes fees paid by passengers, many of which aren't disclosed to these passengers by law, he said. These fees paid by passengers are also eating into airline profits because airlines have to factor them in when pricing a ticket. In addition to the fees and taxes, airlines face higher costs due to rising fuel prices, lost domestic market share to low-cost competition and falling domestic yields because of overcapacity, he said. Yields are a measure of the average fare paid. Chief Financial Officer Jeff Misner explained that low-cost competition will continue to eat into domestic yields in 2005. As a result, Continental is focusing on expanding its international routes, particularly to mid-sized cities in Europe which can't be reached by low-cost competitors' fleets, Bethune said. The airline has been "enticed by some cities," he said, referring to financial incentives used to draw Continental to Europe. In addition to having a hub in New York that makes flights to Europe feasible, Continental is also able to offer low fares to economy-class passengers because of the premiums paid by first- and business-class passengers, he said. Low-cost carriers can't replicate first- and business-class conditions that justify those fares without increasing their costs, Bethune added. One way Continental plans to deal with rising costs is through wage and benefit concessions from its employees. The airline, however, is waiting for its competitors to reach similar agreements first, Bethune said. In particular, UAL Corp.'s (UALAQ) United Airlines will set the bar for Continental's negotiations because "we cannot pay our pilots less than the biggest employer out there," he said. Bethune said he doesn't know how long Continental will have to wait for United to reach an agreement, but CFO Misner said the airline has a number of options to maintain its cash level. Those include selling its stake in ExpressJet Holdings Inc. (XJT) and Copa Airlines. Continental is particularly wary about having to approach its pilot union more than once. "If you're going to cut a dog's tail off, you better only do it once, " Bethune said. Misner also said Delta Air Lines Inc.'s (DAL) recent agreement for about $1 billion in wage and benefit savings is "probably not quite enough." -By Mohammed Hadi, Dow Jones Newswires; 201-938-2007; mohammed.hadi@ dowjones.com Roger EWROPS