Continental Profit Surprises Wall Street

Wall Street had expected a much smaller profit at the nation's fifth-largest carrier because of rising jet fuel prices and two hurricanes that canceled flights.


Continental Airlines Inc. said Tuesday it earned $61 million in the third quarter, surprising Wall Street, which had expected a much smaller profit at the nation's fifth-largest carrier because of rising jet fuel prices and two hurricanes that canceled flights.

Continental's profit included a $3 million special charge. Excluding the charge, Continental earned $64 million or 83 cents per share. Analysts surveyed by Thomson Financial had forecast 27 cents per share. A year ago, Houston-based Continental lost $18 million, or 29 cents per share.

Revenue was a record $3 billion, up 15.3 percent from $2.6 billion a year earlier.

Continental's fuel bill rose 65 percent, to $684 million for the July-September quarter, and was the airline's biggest expense. The carrier attributed $109 million in third-quarter operating income - an $87 million hike over $22 million in the year-ago period - to revenue improvements and more than $400 million in savings from pay and benefit concessions.

Continental said the $3 million net special charge was from an $18 million settlement charge related to lump-sum distributions from a frozen pilot defined pension plan and a $15 million reversal of previously recorded expenses for grounded aircraft.

"Clearly both the revenue performance and the labor cost performance were significant improvements year over year," but fuel hikes were "pretty much swamping all that progress" for Continental and other legacy carriers, said Fitch Ratings analyst William Warlick.

Hurricanes Katrina and Rita hit the company doubly hard - by driving up jet fuel prices and by forcing Continental to suspend service for 36 hours at its largest hub, Houston's Bush Intercontinental Airport. Severe weather, including the hurricanes, caused the company to scrub 1,272 flights and cost an estimated $25 million in revenue during the quarter.

Passenger traffic rose 7 percent and Continental also was helped by higher fares and expansion into international markets - a rare bright spot in the revenue picture for most airlines the past few years.

Continental said it expected to have $1.4 billion in liquidity by year's end. The airline still expects a loss for the current quarter and will have $356 million in debt and capital lease payments this year, including a $65 million cash contribution this month to its pension plan.

"Relative to the bankrupt carriers, this is a fairly strong liquidity position, but obviously they face cash flow pressures," Warlick said.

The airline released it earnings report a day ahead of schedule. A spokeswoman declined to say why, and Continental declined to make executives available for comment before a conference call Wednesday morning with analysts.

The company had said earlier it expected to report "a modest profit" for the quarter after a "relatively strong performance" in July and August.

Continental added 7.9 percent capacity to its system - 8.8 percent including its regional affiliates - as measured by the number of seats times miles flown. But planes flew slightly fuller than a year ago, with occupancy rising 0.4 percentage points to 81.1 percent. Passenger revenue rose 14.1 percent on Continental flights and 15.3 percent including affiliate carriers.

Some of Continental's rivals, including AMR Corp.'s American Airlines and Delta Air Lines Inc., have reduced flights to save on fuel.

Before the company released the report, Continental's Class B shares rose 16 cents to close at $11.89 on Tuesday on the New York Stock Exchange. The stock has traded between $7.63 and $16.60 over the past year.

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AP Business Writer David Koenig in Dallas contributed to this report.

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On the Net: http://www.continental.com


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