Investors and analysts had hoped that a wave of airline mergers would arrive that would help them cut costs and eliminate flights and hubs in order to survive.

Instead, the airlines are taking the ax to themselves.

Continental Airlines is the third big U.S. airline to announce that it is sharply retrenching, following American and United.

The airline plans to eliminate 3,000 jobs, or 6.5 percent of its workforce, and retire 67 older Boeing 737s.

"The airline industry is in a crisis," said Larry Kellner, Continental's chief executive, and Jeff Smisek, its president, in a message to employees today. "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."

Continental will try at first to make the job cuts through voluntary means, like buyouts.

The moves by the three airlines will mean that more than 10 percent of passenger seats are being taken out.

The reason for the urgency of the cost cutting has been the recent surge in jet-fuel prices, as Zubin Jelveh detailed here.

Jet fuel now accounts for as much as 40 percent of an airline's costs. As a result, the industry is projected to lose more than $7 billion this year.

The timing may be odd, but Lehman Brothers today raised its ratings on two airlines, UAL, the parent of United Airlines, and Northwest, which is merging with Delta.