Continental yesterday dealt a blow to long-time partner and former subsidiary ExpressJet, unveiling plans to cut 69 planes or about 25% of the carrier's 274-aircraft fleet by summer 2007.

Continental's decision comes after negotiations during the last few months between the two airlines to reach a new long-term contract failed. Continental believes ExpressJet's rates are "above the current market." A spokesman for Continental explained that its amended 2002 agreement with ExpressJet was based on how the industry stood before to restructuring, and the rates in that deal are now uncompetitive.

A recent analysis by JP Morgan, however, puts ExpressJet near the bottom of the revenue scale among the larger regional carriers -- a group that also includes Comair, SkyWest, American Eagle, Mesa, Pinnacle and Republic. ExpressJet's revenue per block hour for the year through the third quarter was $1,887, just above the lowest block-hour revenue of $1,865 at Republic.

The regional jets are scheduled to start exiting the ExpressJet fleet in January 2007 and continue through the summer of that year. For Continental, the next step in the process is to send out a request for other regional airlines to bid on the flying being cut at ExpressJet. Continental said ExpressJet could continue to sublease any of the 69 planes being cut from its fleet "at significantly increased rates."

There are some risks to Continental once it starts removing the planes from ExpressJet's fleet. In a regulatory filing the carrier said that although it expects to save money on the switch, the airline could experience "degradation in ExpressJet's performance" as a result of fleet cuts. Continental also said the operational performance of the new carrier might not match that of ExpressJet's. Either of those scenarios, Continental said, could affect its traffic flow, operations and revenue.