Continental Airlines Announces Second Quarter Loss
HOUSTON, July 21 /PRNewswire-FirstCall/ — Continental Airlines (NYSE: CAL) today reported a second quarter 2009 net loss of $213 million ($1.72 diluted loss per share). Excluding $44 million of previously announced special charges, Continental recorded a net loss of $169 million ($1.36 diluted loss per share).
Second quarter results were adversely affected by significant declines in high yield traffic as many business travelers curtailed travel or purchased lower yield economy tickets due to the weakened economy. In addition, the H1N1 virus reduced second quarter consolidated passenger revenue by an estimated $50 million. Fuel expense declined $762 million (46.1 percent) in the second quarter 2009 compared to the second quarter 2008, while revenue declined $918 million compared to the same period.
In response to the significant decline in revenue, Continental is implementing a number of measures to raise revenues and reduce costs that are designed to achieve approximately $100 million in annual benefits when fully implemented in 2010 including:
- Eliminating approximately 1,700 positions across the company, including management and clerical positions. This is in addition to the previously announced elimination of 500 reservation agent positions and special company offered leaves of absence extended for 700 flight attendants. Continental is offering employees voluntary programs to minimize the number of involuntary furloughs and reductions in force.
- Increasing domestic checked baggage fees by $5 for customers who do not prepay those fees online. This change is effective immediately for travel Aug. 19, 2009, and beyond.
- Increasing the telephone reservation booking service fee by $5 effective immediately.
- Other revenue initiatives to be announced when implemented
“My co-workers are doing a great job of working together to focus on customer service despite significant challenges currently facing our industry,” said Larry Kellner, chairman and chief executive officer. “While the unit revenue decline appears to be bottoming out, it is doing so at low levels and we must take aggressive steps to increase revenue and reduce costs. The most difficult changes will be the employee reductions that we are forced to make throughout the company.”
Second Quarter Revenue and Capacity
Total revenue for the quarter was $3.1 billion, a decrease of 22.7 percent compared to the same period in 2008. Passenger revenue for the quarter fell 24.2 percent ($883 million) compared to the same period last year due to lower fares and passenger traffic declines.
Consolidated revenue passenger miles (RPMs) for the second quarter decreased 6.4 percent year-over-year on a capacity decrease of 7.8 percent, resulting in a second quarter consolidated load factor of 82.7 percent, 1.3 points higher than the second quarter of 2008.
Consolidated yield for the second quarter decreased 19.1 percent year-over-year.
Consolidated passenger revenue per available seat mile (RASM) for the second quarter decreased 17.7 percent year-over-year.
Mainline RPMs in the second quarter of 2009 decreased 5.7 percent compared to the second quarter of 2008, on a capacity decrease of 7.3 percent year-over-year.
Mainline load factor was 83.2 percent, up 1.5 points year-over-year for the second quarter. Continental’s mainline yield decreased 18.3 percent in the second quarter over the same period in 2008. As a result, second quarter 2009 mainline RASM was down 16.9 percent compared to the second quarter of 2008.
Passenger revenue for the second quarter of 2009 and period-to-period comparisons of related statistics by geographic region for the company’s mainline operations and regional operations are as follows:
Percentage Increase (Decrease) in
Second Quarter 2009 vs. Second Quarter 2008
Passenger -------------------------------------------
Revenue Passenger
(in millions) Revenue ASMs RASM Yield
------- ---- ---- ----- ------
Domestic $1,167 (22.4)% (9.5)% (14.3)% (15.9)%
Trans-Atlantic 577 (28.3)% (10.6)% (19.8)% (23.8)%
Latin America 345 (20.8)% (5.2)% (16.5)% (16.4)%
Pacific 211 (12.3)% 12.8 % (22.3)% (18.9)%
Total Mainline $2,300 (22.9)% (7.3)% (16.9)% (18.3)%
Regional $467 (29.9)% (11.8)% (20.5)% (20.1)%
Consolidated $2,767 (24.2)% (7.8)% (17.7)% (19.1)%
Cargo revenue in the second quarter of 2009 decreased 37.9 percent ($50 million) compared to the same period in 2008, due to reduced freight volume and lower pricing.
Second Quarter Operations and Notable Accomplishments
During the quarter, employees earned $9 million in cash incentives for running the best on-
time operation among the major network carriers in May and June as reported by the U.S. Department of Transportation (DOT). Continental recorded an on-time arrival rate of 78.7 percent and a systemwide mainline segment completion factor of 99.6 percent during the quarter.
“My co-workers have done an impressive job running a good operation and delivering great service despite very high load factors, which put additional stress on the system,” said Jeff Smisek, president and chief operating officer. “We will get through this global recession by working together and continuing to outperform our competitors.”
The DOT approved the application for Continental to join the existing antitrust immunized alliance including United Airlines and eight other Star Alliance member carriers, ensuring effective global competition with other antitrust immunized alliances while encouraging the retention and growth of open skies between the U.S. and other nations. Continental remains focused on providing a seamless transition for its customers from the SkyTeam alliance to Star Alliance this fall.
During the quarter, Continental contributed $50 million to its defined benefit pension plans.
Continental continued to install DIRECTV(R) on its aircraft during the quarter, with the new service now offered on 16 aircraft. DIRECTV(R) gives customers the choice of 77 channels of live television programming — more channels than any other carrier — including live sports, news, weather and children’s shows. The company expects to complete installation on its fleet of Boeing 737 Next-Generation and Boeing 757-300 aircraft by the first quarter of 2011.
Second Quarter Costs
Due to significantly lower jet fuel costs, Continental’s mainline cost per available seat mile (CASM) decreased 12.9 percent (13.2 percent excluding special charges) in the second quarter compared to the same period last year. The mainline price of a gallon of fuel dropped 39.7 percent year-over-year and mainline fuel consumption fell by 9.4 percent. Holding fuel rate constant and excluding special items, second quarter 2009 mainline CASM increased 2.8 percent compared to the second quarter of 2008.
“Once again, the entire Continental team did an outstanding job controlling costs and
running an efficient operation in a challenging economic environment,” said Zane Rowe, Continental’s executive vice president and chief financial officer.
Fuel costs for the quarter were $762 million lower compared to the same period last year as a result of a decrease in fuel prices and lower volumes. Consolidated fuel price was $2.07 per gallon in the second quarter of 2009, of which $0.49 per gallon was related to fuel hedge losses. Consolidated fuel price was $3.46 per gallon in the second quarter 2008, which included $0.17 per gallon in fuel hedge gains. During the quarter, mainline fuel consumption decreased 9.4 percent compared to the same period last year, while mainline RPMs decreased only 5.7 percent compared to the same period.
Fleet Changes Continue to Improve Efficiency
Continental continued to improve fuel efficiency during the quarter by adding modern, fuel-efficient aircraft, equipped with winglets. During the quarter, Continental took delivery of two new Boeing 737-900ERs, one of which was painted with a retro livery to commemorate the airline’s 75th anniversary. In addition, the company removed from service four Boeing 737-500s.
Continental is expected to take delivery of seven Boeing 737 aircraft in the second half of 2009. The company expects to remove 29 additional Boeing 737-300 and 737-500 aircraft from service by January 2010.
Cash and Liquidity
Continental ended the second quarter with $2.77 billion in unrestricted cash, cash equivalents and short-term investments.
On July 1, 2009, Continental completed the sale of $390 million of Pass Through Certificates, the first offering of its kind to close since the credit markets froze last year. A portion of the proceeds from the sale of the certificates will be used to finance the company’s purchase of five new Boeing 737-900ERs expected to be delivered by the end of 2009. The remainder of the proceeds will be used for general corporate purposes. The Pass Through Certificates will be secured by a total of 17 of the company’s aircraft.
In addition, Continental completed an agreement with a commercial bank to provide financing for two Boeing 737-900ER aircraft scheduled for delivery in July of 2009, one of which has already been delivered. The company has now completed financing arrangements for all of its new aircraft deliveries this year and has backstop financing available for all of its new aircraft deliveries in 2010.
Corporate Background
Continental Airlines is the world’s fifth largest airline. Continental, together with Continental Express and Continental Connection, has more than 2,750 daily departures throughout the Americas, Europe and Asia, serving 133 domestic and 132 international destinations. Another 750 additional points are served via current alliance partners. With more than 43,000 employees, Continental has hubs serving New York, Houston, Cleveland and Guam, and together with its regional partners, carries approximately 63 million passengers per year. For more company information, go to continental.com.
Continental Airlines will conduct a regular quarterly telephone briefing today to discuss these results and the company’s financial and operating outlook with the financial community and news media at 9:30 a.m. CT/10:30 a.m. ET. To listen to a live broadcast of this briefing, go to continental.com/About Continental/Investor Relations.
This press release contains forward-looking statements that are not limited to historical facts, but reflect the company’s current beliefs, expectations or intentions regarding future events. All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. For examples of such risks and uncertainties, please see the risk factors set forth in the company’s 2008 Form 10-K and its other securities filings, including any amendments thereto, which identify important matters such as the significant volatility in the cost of aircraft fuel, the company’s transition to a new global alliance, the consequences of its high leverage and other significant capital commitments, its high labor and pension costs, delays in scheduled aircraft deliveries, service interruptions at one of its hub airports, disruptions to the operations of its regional operators, disruptions in its computer systems, and industry conditions, including the recession in the U.S. and global economies, the airline pricing environment, terrorist attacks, regulatory matters, excessive taxation, industry consolidation, the availability and cost of insurance, public health threats and the seasonal nature of the airline business. The company undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this press release, except as required by applicable law.
-tables attached-
CONTINENTAL AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(In millions, except per share data) (Unaudited)
Three Months % Six Months %
Ended June 30, Increase/ Ended June 30, Increase/
2009 2008 (Decrease) 2009 2008 (Decrease)
---- ---- ---- ----
(Adjusted) (Adjusted)
Operating Revenue:
Passenger
(excluding fees
and taxes
of $379, $408,
$725 and $784) $2,767 $3,650 (24.2)% $5,384 $6,873 (21.7)%
Cargo 82 132 (37.9)% 167 254 (34.3)%
Other 277 262 5.7 % 536 487 10.1 %
--- --- --- ---
3,126 4,044 (22.7)% 6,087 7,614 (20.1)%
----- ----- ----- -----
Operating
Expenses:
Aircraft fuel and
related taxes (A) 891 1,653 (46.1)% 1,626 2,915 (44.2)%
Wages, salaries
and related costs 799 704 13.5 % 1,564 1,432 9.2 %
Aircraft rentals 235 246 (4.5)% 472 493 (4.3)%
Regional capacity
purchase, net (A) 217 299 (27.4)% 431 591 (27.1)%
Landing fees and
other rentals 216 210 2.9 % 425 418 1.7 %
Maintenance,
materials and
repairs 161 167 (3.6)% 314 326 (3.7)%
Distribution costs 150 194 (22.7)% 307 375 (18.1)%
Depreciation and
amortization 118 108 9.3 % 229 215 6.5 %
Passenger services 96 107 (10.3)% 183 203 (9.9)%
Special charges (B) 44 58 NM 48 50 NM
Other 353 369 (4.3)% 696 733 (5.0)%
--- --- --- ---
3,280 4,115 (20.3)% 6,295 7,751 (18.8)%
----- ----- ----- -----
Operating Loss (154) (71) NM (208) (137) 51.8 %
----- ---- ----- -----
Nonoperating
Income (Expense):
Interest expense (C) (90) (91) (1.1)% (183) (185) (1.1)%
Interest
capitalized 8 8 - 17 17 -
Interest income 4 16 (75.0)% 8 40 (80.0)%
Gain on sale of
investments - 78 (100.0)% - 78 (100.0)%
Other, net 19 11 72.7 % 17 10 70.0 %
-- -- -- --
(59) 22 NM (141) (40) NM
---- -- ----- ----
Loss before Income
Taxes (213) (49) NM (349) (177) 97.2 %
Income Tax Benefit (C) - 44 (100.0)% - 90 (100.0)%
--- --- --- ---
Net Loss $(213) $(5) NM $(349) $(87) NM
===== ==== ===== =====
Basic and Diluted
Loss per Share $(1.72) $(0.05) NM $(2.82) $(0.87) NM
======= ======= ======= =======
Shares Used for
Basic and Diluted
Computation 124 99 25.3 % 124 99 25.3 %
(A) Expense related to fuel and related taxes on flights operated for us
by other operators under capacity purchase agreements is now included
in aircraft fuel and related taxes, whereas it was previously reported
in regional capacity purchase, net. Reclassifications have been made
in these financial statements to conform to our current presentation.
These reclassifications do not affect operating loss or net loss for
any period.
(B) Operating Expenses: Special Charges. Special charges includes the
following:
Three Months Year Ended
Ended June 30, June 30,
2009 2008 2009 2008
---- ---- ---- ----
Aircraft-related charges, net of
gains on sales of aircraft $43 $41 $47 $33
Other 1 17 1 17
-- -- -- --
Total special charges $44 $58 $48 $50
=== === === ===
2009. Aircraft-related charges in the second quarter of 2009 include
$31 million of non-cash impairments on owned Boeing 737-300 and 737-
500 aircraft and related assets, an $8 million non-cash charge related
to the disposition of three Boeing 737-300 aircraft and a $4 million
non-cash charge to write off certain obsolete spare parts. In the
first quarter of 2009, the company recorded $4 million charge for
future lease costs and other related costs on a permanently grounded
Boeing 737-300 aircraft.
2008. Aircraft-related charges in the second quarter of 2008 include
$37 million of non-cash impairments on owned Boeing 737-300 and 737-
500 aircraft and related assets, a non-cash charge of $14 million to
write down spare parts and supplies for the Boeing 737-300 and 737-500
fleets to the lower of cost or net realizable value and $10 million of
gains on the sale of two owned Boeing 737-500 aircraft. Other special
charges in the second quarter of 2008 include $17 million of charges
related to contract settlements with regional carriers and unused
facilities. During the first quarter of 2008, the company sold three
owned Boeing 737-500 aircraft, resulting in net gains of $8 million.
(C) Effective January 1, 2009, we adopted the Financial Accounting
Standards Board's Staff Position No. APB 14-1, "Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)," which clarifies the
accounting for convertible debt instruments that may be settled in
cash (including partial cash settlement) upon conversion. The
financial statements for the three and six months ended June 30, 2008
have been adjusted to reflect our adoption of this standard.
CONTINENTAL AIRLINES, INC. AND SUBSIDIARIES
STATISTICS
Three Months % Six Months %
Ended June 30, Increase/ Ended June 30, Increase/
2009 2008 (Decrease) 2009 2008 (Decrease)
---- ---- ---------- ---- ---- ----------
Mainline
Operations:
Passengers
(thousands) 11,876 13,000 (8.6)% 22,438 25,196 (10.9)%
Revenue passenger
miles (millions) 20,772 22,017 (5.7)% 38,462 41,940 (8.3)%
Available seat
miles (millions) 24,963 26,933 (7.3)% 48,316 52,211 (7.5)%
Cargo ton miles
(millions) 219 263 (16.7)% 420 524 (19.8)%
Passenger load
factor:
Mainline 83.2% 81.7% 1.5 pts. 79.6% 80.3% (0.7) pts.
Domestic 86.4% 84.7% 1.7 pts. 83.2% 83.4% (0.2) pts.
International 80.2% 78.8% 1.4 pts. 76.2% 77.3% (1.1) pts.
Passenger revenue
per available seat
mile (cents) 9.21 11.08 (16.9)% 9.31 10.85 (14.2)%
Total revenue per
available seat
mile (cents) 10.59 12.49 (15.2)% 10.71 12.22 (12.4)%
Average yield per
revenue passenger
mile (cents) 11.07 13.55 (18.3)% 11.69 13.50 (13.4)%
Average fare per
revenue passenger $195.82 $231.94 (15.6)% $202.48 $227.07 (10.8)%
Cost per available
seat mile (CASM)
(cents) (A) 10.85 12.45 (12.9)% 10.71 12.13 (11.7)%
Special charges per
available seat
mile (cents) 0.18 0.16 NM 0.10 0.06 NM
CASM, holding fuel
rate constant
(cents) (A) 12.82 12.45 3.0% 12.40 12.13 2.2%
Average price per
gallon of fuel,
including
fuel taxes $2.08 $3.45 (39.7)% $1.96 $3.13 (37.4)%
Fuel gallons
consumed
(millions) 358 395 (9.4)% 692 769 (10.0)%
Actual aircraft in
fleet at end of
period (B) 351 375 (6.4)% 351 375 (6.4)%
Average length of
aircraft flight
(miles) 1,551 1,497 3.6 % 1,527 1,477 3.4 %
Average daily
utilization of
each aircraft
(hours) 10:46 11:34 (7.0)% 10:34 11:23 (7.1)%
Regional
Operations:
Passengers
(thousands) 4,472 4,962 (9.9)% 8,318 9,205 (9.6)%
Revenue passenger
miles (millions) 2,394 2,729 (12.3)% 4,494 5,085 (11.6)%
Available seat
miles (millions) 3,044 3,450 (11.8)% 6,015 6,548 (8.1)%
Passenger load 78.7% 79.1% (0.4) pts. 74.7% 77.7% (3.0) pts.
factor
Passenger revenue
per available seat
mile (cents) 15.35 19.31 (20.5)% 14.74 18.47 (20.2)%
Average yield per
revenue passenger
mile (cents) 19.51 24.41 (20.1)% 19.72 23.78 (17.1)%
Actual aircraft in
fleet at end of
period (C) 266 278 (4.3)% 266 278 (4.3)%
Consolidated
Operations
(Mainline and
Regional):
Passengers
(thousands) 16,348 17,962 (9.0)% 30,756 34,401 (10.6)%
Revenue passenger
miles (millions) 23,166 24,746 (6.4)% 42,956 47,025 (8.7)%
Available seat
miles (millions) 28,007 30,383 (7.8)% 54,331 58,759 (7.5)%
Passenger load
factor 82.7% 81.4% 1.3 pts. 79.1% 80.0% (0.9) pts.
Passenger revenue
per available seat
mile (cents) 9.88 12.01 (17.7)% 9.91 11.70 (15.3)%
Average yield per
revenue passenger
mile (cents) 11.94 14.75 (19.1)% 12.53 14.62 (14.3)%
Average price per
gallon of fuel,
including
fuel taxes $2.07 $3.46 (40.2)% $1.95 $3.14 (37.9)%
Fuel gallons
consumed
(millions) 430 478 (10.0)% 833 929 (10.3)%
(A) Includes impact of special charges.
(B) Excludes nine grounded Boeing 737-300 aircraft, nine grounded Boeing
737-500 aircraft and one Boeing 737-900ER aircraft delivered but not
yet placed into service at June 30, 2009.
(C) Consists of aircraft operated under capacity purchase agreements with
Continental's regional carriers ExpressJet, Colgan, Chautauqua and
CommutAir. Excludes 30 EMB-135 aircraft temporarily grounded at June
30, 2009.
CONTINENTAL AIRLINES, INC. AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES
Three Months
Net Loss (in millions) Ended June 30, 2009
-------------------
Net loss $(213)
Adjust for special charges (net of tax of $0) 44
---
Net loss, excluding special items (A) $(169)
======
Three Months
Ended June 30, 2009
Loss per Share -------------------
Diluted Loss per share $(1.72)
Adjust for special charges 0.36
----
Diluted loss per share, excluding special items (A) $(1.36)
=======
CASM Mainline Operations (cents)
Three Months % Six Months %
Ended June 30, Increase/ Ended June 30, Increase/
2009 2008 (Decrease) 2009 2008 (Decrease)
Cost per available
seat mile (CASM) $10.85 $12.45 (12.9)% $10.71 $12.13 (11.7)%
Less:
Special charges
per available
seat mile (0.18) (0.16) NM (0.10) (0.06) NM
------ ------ ------ ------
CASM, excluding
special charges 10.67 12.29 (13.2)% 10.61 12.07 (12.1)%
Less:
Current year
fuel cost per
available seat
mile (B) (2.98) - NM (2.80) - NM
Add:
Current year
fuel cost at
prior year
fuel price
per available
seat mile (B) 4.95 - NM 4.49 - NM
---- --- ---- ---
CASM, holding
fuel rate constant
and excluding
special charges (A) $12.64 $12.29 2.8% $12.30 $12.07 1.9%
====== ====== ====== ======
(A) These financial measures provide management and investors the ability
to measure and monitor Continental's performance on a consistent
basis.
(B) Both the cost and availability of fuel are subject to many economic
and political factors and are therefore beyond the company's control.
SOURCE Continental Airlines