Continental Posts Loss, Stock Down On Weak Fares

Continental Airlines posted a smaller loss than Wall Street had expected on Wednesday but warned of weak transatlantic pricing, erasing an earlier gain in its shares and sending them sinking.

The Houston-based company reported its fifth straight quarterly loss as traffic fell, especially among business passengers, echoing a trend seen among most major airlines. The results still beat analysts' estimates, and Continental shares responded by rising 5 percent initially.

But investors were rattled during the company's conference call when President Jeff Smisek said average fares to Europe had fallen 35 percent to the end of May.

"The transatlantic is fairly ugly right now," Smisek said during the call.

The comments sent Continental stock tumbling 10 percent in New York Stock Exchange trade.

Houston-based Continental said its first-quarter loss widened to USD$136 million, or $1.10 per share from USD$80 million, or 81 cents per share, a year earlier.

Revenue fell 17 percent to USD$3 billion.

Continental said its bottom line benefited in the first quarter from the sharp drop in fuel prices. It said it aims to cut capacity by 7.4 percent in the second quarter and 4 percent to 5 percent in the full year, roughly in line with what it announced in January.

"There might be a feeling that Continental could do more in terms of cutting back capacity and removing things like staffing and other costs that go along with any kind of capacity reduction," said Majestic Research analyst Matthew Jacob.

The carrier was the fifth major airline to report a net loss, following American Airlines, United Airlines, Delta Air Lines and Southwest Airlines.

Continental said its traffic fell 11.2 percent from a year before as many consumers "curtailed travel or purchased lower-yield economy tickets."

High-yield business travel has long been the meal ticket for most legacy airlines, such as Continental.

"The chance of a profit this year seems more challenging as uncertainty remains regarding a rebound in travel this year," Jacob said.

"Some of the airline management teams have had a little more positive stance, whereas Continental management really served to temper some expectations -- especially with some of the numbers they threw out."

RASM DEGRADATION SLOWING

During the conference call, Smisek, who is also the company's chief operating officer, noted that the rate of decline in revenue per passenger mile (RASM) appears to be slowing and international business in the first quarter appeared to be profitable, while the domestic side was not.

Still, he said there were "pretty significant" declines in RASM in transatlantic markets.

He said the company expects its transatlantic capacity to fall 7 percent to 8 percent in 2009.

Continental is the most aggressive of all major airlines in pricing its transatlantic air travel, said FareCompare chief executive Rick Seaney.

For example a Continental nonstop flight from New York to London in mid-May costs about USD$451. Rival American Airlines charges USD$631 for a similar flight.

Jacob said management's comments offered little visibility about when demand trends might improve.

"It feeds into greater uncertainty when investors are trying to gauge the health of this business," he said.