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Continental Airlines Posts 'Modest Profit' in Second Quarter

Posted on: Thursday, 21 July 2005, 03:00 CDT

Jul. 21--Continental Airlines posted a "modest profit" Wednesday and in the process handily beat analysts' expectations.

Despite the good news, the Houston-based carrier said it still expects to see a substantial loss for the year, as do most other U.S. airlines.

Continental Chairman and CEO Larry Kellner credited recent employee wage and benefit cuts with helping to stabilize the company during a difficult time for the airline industry.

"Achieving a modest profit in one of the two strongest quarters of the year was a direct result of the contract ratifications that occurred on March 30," Kellner said. "High costs and depressed fares have doomed more than one airline, but we're going to stay focused on the key issues to make sure we're a long-term survivor."

Although Continental won concessions from most employees and unions, it filed for federal mediation with its flight attendants' union to try to reach agreement on proposed cuts from that group.

Kellner said he expects to see at least one more carrier join United Airlines and US Airways in filing for bankruptcy protection this year as the industry continues to battle higher fuel costs and increased competition from low-cost carriers.

Higher passenger traffic during the second quarter helped Continental achieve net income of $100 million, or $1.26 diluted earnings per share. That compared with a second-quarter loss a year ago of $28 million, or 43 cents per share.

For airlines, the second quarter typically is one of the strongest as the industry swings into its busy summer travel season.

Continental had been expected to post a profit of 20 cents per share.

The carrier's revenue for the second quarter was $2.86 billion, which represented a gain of 12 percent from the $2.55 billion reported a year earlier.

For 2006, Kellner said Continental's goal is to continue its aggressive international expansion and grow between 5 percent and 7 percent.

Standard & Poor's analyst Philip Baggaley called Continental's results "encouraging," noting that it had stronger revenues from both international and domestic operations.

"Unfortunately, fare increases achieved in the domestic market were insufficient to offset 49 percent higher fuel costs," Baggaley said in a Wednesday report.

Continental's fuel expense for the quarter was $188 million, with an average cost of $1.66 a gallon. The carrier estimates the price will rise to $1.82 a gallon in the third quarter.

Continental has no fuel hedges in place, but the carrier reiterated that it is taking steps to cut fuel costs in other ways, such as outfitting some planes with wing extensions that cut fuel use an estimated 5 percent.

The airline also announced Wednesday it will double the number of first-class seats offered on its Boeing 757-300 aircraft, going from 12 to 24 seats. Those aircraft are used domestically, and the first of the reconfigured planes should be flying this summer, officials said.

Continental has expanded significantly internationally this year, adding nine routes in just the second quarter.

"Continental is growing internationally more than any other legacy carrier this year," Kellner said.

President Jeff Smisek said the carrier's strategy is clearly working and it is outdistancing its competitors.

"There will be consistent international growth," Smisek added. "That is where the money is."

Continental inaugurated service to Beijing during the quarter, becoming the first U.S. passenger airline to initiate flights to mainland China in almost 20 years. It is scheduled to begin daily nonstop service to New Delhi, India, on Nov. 1.

Continental's stock closed the day up 20 cents a share at $15.90.

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CAL, MHP,

Source: Houston Chronicle

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