Continental Airlines Inc posted a steeper second-quarter loss on Tuesday as the slump in business travel and fears about the H1N1 virus hurt revenue, and said it will cut its work force by 4 percent.

The airline also increased its domestic checked bag fee by $5, effective August 19, for those not prepaying online.

The net loss widened to $213 million, or $1.72 per share, from $3 million, or 3 cents per share, a year ago.

Excluding $44 million in special charges from the declining value of its aircraft, Continental lost $169 million, or $1.36 per share.

Revenue dropped 22.7 percent to $3.1 billion as business travelers cut back on travel or bought cheaper economy-class tickets. The H1N1 virus, once known as swine flu, cost the carrier about $50 million in passenger revenue.

The Houston-based company will cut 1,700 jobs and increase the bag fee as it grapples with the sharp revenue decline.

The carrier aims to generate about $100 million in annual benefits when the measures are fully implemented in 2010.

In addition to the bag fee, Continental increased its telephone reservation service charge by $5, effective immediately. The company said other revenue initiatives will be coming.

The new round of planned job cuts come after it eliminated 500 reservation agent positions. The company also offered leaves of absence for 700 flight attendants as well as employee voluntary furlough programs.

Mainline passenger revenue fell 22.9 percent on lower fares and a decline in passenger traffic. Mainline capacity shrank 7.3 percent in the quarter.

Continental is expecting delivery of seven Boeing 737 aircraft in the second half of 2009. The company looks to remove 29 additional Boeing 737s from service by January 2010.

(Reporting by Deepa Seetharaman; Editing by Derek Caney and Jeffrey Benkoe)

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