Continental Airlines Earnings Rise on Fare Hikes

Posted 20 July 2006 @ 10:16 pm EET     Print     Reprint     E-Mail     Comments

New York (Reuters) - U.S. carrier Continental Airlines Inc. on Thursday said second-quarter earnings nearly doubled as fuller flights and higher fares offset increased fuel costs. The jump in earnings came a day after rivals Southwest Airlines Co. and American Airlines parent AMR Corp. both posted stronger-than-expected quarters, offering another sign that the long-suffering industry is on the mend.

Continental's net income rose to $198 million, or $1.84 a share, from $100 million, or $1.26 a share, a year earlier. The second-quarter profit follows a loss of $66 million in the first quarter.

But Continental failed to match the outperformance of its rivals and remains exposed to rising jet fuel prices, putting its shares under pressure. Continental stock, which has led the sector with a gain of 43 percent so far this year, was down 2 percent at $30 on Thursday on the New York Stock Exchange. After years of losses, worsened by the after-effects of the September 11, 2001 attacks, carriers have moved to lower costs and reduce the size of their fleets. The changes have helped them gain pricing power and raise fares.

"Most of the fare increases have been holding. That's key," said Helane Becker, an analyst with Benchmark Co. She expects revenue for the industry to be solid through the rest of the year, but says it is unclear whether profitability will hold up as well. Excluding special items, the Houston-based airline posted earnings of $1.93 a share. Wall Street analysts expected $1.94, according to Reuters Estimates.

Operating revenue rose 23 percent to $3.51 billion from $2.86 billion as revenue per seat rose 11 percent. The company had a record load factor of 82.7 percent in the quarter, 3.1 points better than a year ago. The lower costs coupled with recent fare increases more than offset a rise in the company's fuel costs, which increased 38 percent to $791 million. The company had hedged 25 percent of its jet fuel purchase in the second quarter and increased that to about 33 percent in the third quarter.

For the third quarter, the company said it was hedged at an average crude oil swap price of $73.18 a barrel. Crude oil currently trades at about $74 a barrel. In a further sign of willingness to reduce fleet sizes, Continental said it will only replace 40 to 50 of the 69 planes that regional airline partner ExpressJet Holdings Inc. recently decided to purchase.