Update: It appears Continental made an airfare filing mistake this morning at 10am and corrected it at 12:30pm …

I told you airfares were volatile — and Continental is now proving my point.

The carrier has “changed its mind” about bailing out of the $40 airfare hike, and has reinstated the increase — but only at the $40 roundtrip level (this had been a $20 to $40 increase).

We have seen this behavior in the past with fuel surcharges — but it is rare that we see a wholesale change in airfares in back-to-back airfare distributions (U.S. Domestic airfares are distributed at 10:00am EDT, 12:30pm EDT and 8:00pm EDT weekdays, 5:00pm EDT on weekends).

IMPORTANT NOTE: Continental travelers planning future travel have about a 2 hour window to book at the rolled back level as these new reinstated higher airfares will hit the reservation systems at approximately 3:00pm EDT.

This morning, Continental Airlines rolled back the bulk of its $20 to $40 roundtrip increase; this latest fare hike was initiated last Thursday by Southwest.

Note: every time Continental has rolled back (or not participated) in an airfare hike, it has spelled the death of that hike.

What makes this turnabout especially unusual is the fact that it was initiated by Southwest, and the legacy airlines took this rare opportunity to quickly double-up and hike fares by up to $40 roundtrip.

Over the weekend there were some signs of softening by other legacy airlines as they began to tinker with some rollbacks in the lower end of the increase ($20 roundtrip) - some of which was related to a variety of July 4^th holiday weekend sales.

Airline ticket prices are going to be highly volatile in the coming weeks and months as airlines search for just the right mix of ticket price, add-on fees and flight cutbacks to stem the flow of red ink caused by record high fuel prices. Air travel consumers should be aware of this volatility and take advantage of down swings - like the one most likely to occur later today — as other legacy airlines are apt to rollback in the wake of Continental.

I know the summer sun is blazing, and you’re more likely to be thinking about a trip to the pool than what you’re doing this Thanksgiving or Christmas, but believe me, there are always reasons to start your holiday airfare shopping early. Case in point: at FareCompare, we’ve found business class seats to Europe over Thanksgiving and Christmas for less then the cost of economy seats.

Joe Brancatelli of Joe Sent Me wrote about unexpected holiday business class deals on Continental Airlines, and we discovered while scouring our airfare feeds for the best deals for our Travel Deals blog is that these BusinessFirst airfares were filed by Continental Airlines on June 6th. There are some restrictions involved, but if you’re flexible on travel dates, you can still take advantage of them.

You’ll find deals to a wide range of European destinations from Newark, Houston, and Cleveland. Deals are good for travel on selected days around Thanksgiving and Christmas — prices are a bit higher for Christmas than Thanksgiving. Remember, you can book these business class seats right now for less than you can book economy seats on Continental.

I just booked 4 for my family and father in law to London over Thanksgiving (from Houston) — Check out how first clsss can be cheaper than coach and the list of non-stop first class deals from Newark below:

We heard last week that Continental is cutting back: here’s an update.

As of September, Continental will be pulling out of the following domestic airports:

• Oakland, Calif.
• Palm Springs, Calif.
• Chattanooga, Tenn.
• Reno, Nev.
• Green Bay, Wis.
• Sarasota, Fla.
• Tallahassee, Fla.
• Toledo, Ohio
• Montgomery, Ala.

The carrier will also end service to these international cities:

• Denpasar, Bali, Indonesia
• Cali, Colombia
• Cologne, Germany
• Santiago, Dominican Republic
• Guayaquil, Ecuador
• Monclova, Mexico

We told you about this yesterday: Continental is pulling planes, dropping routes and cutting jobs.

And we also told you, the airline’s CEO and President won’t take any salary (or bonuses) for the rest of the year.

A former exec with Continental had this to say:

“It gives you some idea of the character of the people who are running the company. They’re willing to take some pain because they’re going to have to lay people off…” — Gordon Bethune, former Continental CEO

Meanwhile, over at Sky Talk, the Allied Pilots Association weighed in:

““Continental and Southwest have leaders, American has bean counters.” –K. Schricker, APA

I’ve heard some say that this is really just a symbolic gesture, that it’s not going to do much for all those people losing their jobs. Perhaps so, but it does show the highest levels of management are willing to make sacrifices – and in my book, that’s a splendid gesture.

First we learned about the United cuts; now, here’s what’s happening with Continental:

Continental announced early this morning that it will reduce its fleet by 21 airplanes during the rest of this year, and another 10 planes in 2009. In other words, the current fleet will go from 375 aircraft to 344 aircraft by this time next year.

Plus, it’s cutting 7% of its workforce — a loss of 3,000 jobs (including some management jobs). They hope to eliminate most through voluntary buyouts, but there will be some, no doubt, who are just let go.

One especially interesting note (according to the article on the Dallas Morning News’ Airline BIZ blog) is that Continental CEO Larry Kellner and Pres. Jeff Smisek have declined their salaries for the remainder of the year and have declined any payment under the annual incentive program for 2008.

BAD NEWS: Just when we had something of a mini-airfare war going on with Hawaii routes (started by Continental, and United quickly followed), instead of expanding these ridiculously low prices a major increase has been fired out (the skirmish might stick on those few city pairs for a few more days).

In other words, Continental has just increased roundtrip fares to Hawaii from $60 to $203. Yep, the war is over; but let this be a reminder to you: if you SEE great fares, JUMP on them. They do not last.

Continental has also increased airfares for thousands of other city pairs by $40 to $60, mostly in what was once tip-toe territory — low cost airline cities.

GOOD NEWS: Delta is dropping airfares (by $34 to $60 roundtrip) to Anchorage, the greater Denver resort cities area and Cincinnati.

An unsettling report from the Houston Chronicle this morning; it seems a Continental pilot said he saw a rocket shoot past his cockpit Monday — or, what he thought was a rocket — and others saw its “trail of smoke”.

This was about 8 miles north of Houston’s George Bush Intercontinental Airport; the plane was heading to Cleveland (and indeed got to Cleveland, without incident or injury).

An FAA spokesman said, they don’t know for sure what the thing was, but have suggested it could be a hobbyist’s model rocket (yes, those things can and do reach incredible altitudes).

Meantime, the FBI is investigating; I’ll let you know if I hear more.

I was perusing some of the “travel forums” on the Los Angeles Times, when I came across this video submitted earlier this year by someone named “unhappy traveler”.

Funny and sad: it notes how, years ago, the creator’s mother wrote a letter of complaint to Continental and was promptly invited to dinner at the CEO’s home!

The video points out that, times have changed. Indeed. Check it out here.

In the wee hours this morning Continental Airlines filed a change to their trans-Atlantic international fuel surcharge - raising it by $40 roundtrip to $270 roundtrip.

Typical taxes and fees on a European roundtrip are approximately $120, which means that before you even start to pay for airfare on any European trip (including those off-season winter prices) you are going to be looking at just shy of $400 before the the airlines (in this case Continental) even starts to charge for airfare. For summer international travel — prices will be well above $1200 out-the-door for roundtrips to Europe .. Ouch!

Update: If you missed me on CNN, you can check out the video here.

I’m on CNN again today (12:10 EDT), talking about the Delta/Northwest merger.

One of the things I want to do is allay some fears about what this will mean to individual passengers.

I can say this: if you have tickets, don’t worry about it — they are still good — and so are your frequent flier miles.

If you see the broadcast, let me know what you think!

The nationwide sale is one in a line of Southwest Airlines airfare sales that have hit the market of late. This latest Southwest Airlines Nationwide sale offers airfare for $49+ to $99+ one-way to cities all over the country, and it’s good for travel on Tuesdays and Wednesdays between February 19th and June 25th.

Well, other major airlines don’t seem to be wasting any time in matching Southwest. Some competition is stirring, and this can mean great savings and a variety of options for travelers. Keep reading for a breakdown of all the action…

Many air travelers have been pinging me with complaints about how hard it is nowadays to find a great airfare deal.

I agree! it is getting harder to find a deal, there are several reasons for this (just peruse down the blog) — but there is hope if you are flexible and start shopping earlier than in the past.

I get the luxury of seeing the best of the best airfare email alerts we send out each day (hundreds of thousands) and there are incredible airline ticket deals each and every day.

Just today for example Washington DC to Honolulu, Hawaii $358+ roundtrip in April (Mon-Thur) …

Airline merger mania continues as the potential of a Delta/Northwest deal grows. Other legacy carriers such as United Airlines and Continental airlines could also be involved, and while Continental has stated it would prefer to remain independent, pilots for the airline know that might not be an option.

In order to prepare themselves for a possible merger, the Continental pilots union has readied their Strategic Merger and Acquisition Response Team (”SMART”).

Keep reading to see how the pilots union can affect the merger process, and how these potential mergers can impact travelers…

Another Thursday night … another attempt to increase airline ticket fuel surcharges … This time the instigator is Continental Airlines who is attempting to raise fuel surcharges to $40 roundtrip - an increase of $20 roundtrip.

This is the 4^th airfare increase attempt in as many weeks of 2008, the previous two attempts failed with only one “sticky” airline ticket increase so far in 2008.

It would appear the main reaction (so far) has been “Grin and Bare It” — according to Continental Airlines we are still buying airline tickets in record numbers at what can only be described as record prices.

Continental passengers paid 11.6% more in the last three months of 2007 than the same time period in 2006 with “record revenue”…