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Continental Posts $213M Loss

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By Adrian Schofield

Despite seeing some promising signs on the demand front, Continental plans to cut 1,700 more positions as part of a new drive to find $100 million in cost reductions and new revenue.

These moves were revealed yesterday as the carrier reported a $213 million second-quarter net loss, prompted by a 24.2% decline in passenger revenue, compared with the same period last year. Mainline unit revenue dropped 16.9%, with yield falling 18.3% — worrying declines but no worse than expected.

The 1,700 job cuts are in addition to major reductions the carrier has already announced for flight attendants and reservations agents. The latest rounds are across all work groups, including management and clerical staff. The carrier will look to voluntary programs to minimize layoffs as much as possible.

Revenue initiatives will include increasing the checked bag fee and the telephone reservation fee by $5. Other revenue moves are in the pipeline, although the airline is giving no details yet.

While April and May numbers were dire, June looked better, said airline President Jeff Smisek — who was last week named to take over as CEO at the beginning of next year. This was particularly true of business traffic, which “is stabilizing” at low levels, Smisek said. “The economic environment doesn’t appear to be getting better, but it’s not getting worse either.”

Revenue from business travelers was down 35% in June, an improvement from the 38% drop in April and May. Overall, July unit revenue looks to be down 16%-18% on a consolidated basis, and 17%-19% for mainline. Mainline domestic booked load factor for the next six weeks is about two to three points higher than at the same time last year. Transatlantic bookings are also up, but transpacific bookings are still down.

“From a [unit revenue] degradation perspective, we do think we’ve hit bottom — although we don’t know how long we’ll bounce along the bottom” before any sign of actual recovery occurs, Smisek said. The demand stability, of course, is due to much lower fares. “The demand is clearly there…more than we expected” at the reduced fare levels.

The industry “is living on the back of a great deal of leisure demand [stimulated] by the low fares,” Smisek said. However, a major caveat is that the carrier can’t predict what will happen in the fall, after the summer leisure travel season ends and the airline will have to rely on business traffic more. While comparisons will get easier after the fourth quarter, this could be misleading because that was when the industry downturn really began to bite last year.

For the second quarter, the loss was $169 million excluding $44 million in special charges. Consolidated revenue was down by $918 million to $3.1 billion. Of the decrease, about $50 million was attributed to the H1N1 flu scare. Fuel cost dropped by 46%, or $762 million. Consolidated traffic fell 6.4% on a 7.8% capacity decline, causing load factor to rise 1.3 points to 82.7%. Mainline traffic dropped 5.7% compared to a 7.3% capacity decline, with loads up 1.5 points to 83.2%.

Continental ended the second quarter with $2.8 billion in unrestricted cash, cash equivalents and short-term investments.

Photo: Benet Wilson





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