Continental returns to profit

Continental Airlines on Tuesday reported a second quarter profit, highlighting the improved domestic revenue environment for US airlines and the benefits of shifting more capacity to international routes.

The airline opened a reporting season likely to be dominated by efforts to rein in costs to counter the rise in fuel prices. All of the so-called network carriers are locked in talks with employees in a bid to secure additional concessions and move their expenses towards those of lower-cost rivals such as Southwest Airlines and JetBlue.

Continental is the only one of the network carriers expected to report a profit, but record passenger revenues in the third quarter saw it surpass analysts’ expectations, with a net profit of $64m following a net loss of $18m in the year-ago period.Earnings per share rose to 83 cents, ahead of the 27-cent consensus among analysts, and follows earnings of 69 cents a share in the prior quarter.

The Houston-based carrier was also among the hardest-hit by the twin hurricanes which hit the southern US in September, disruptions which it said wiped $25m from earnings in the quarter.

Continental, the sixth-largest by revenues in the US, has already been through two rounds of bankruptcy during the 1990s which allowed it to bring staff and financing costs down, and deal with the legacy pension issues facing rivals such as American – which reports on Wednesday – and Delta and Northwest. It is continuing talks with flight attendants, but said unit costs fell 7per cent over the year excluding the impact of higher fuel charges.

While Delta and Northwest were last month forced into bankruptcy, analysts see Continental and American having sufficient liquidity to continue. Continental said it ended the quarter with $1.92bn in unrestricted cash and forecasts this to fall to $1.4bn at year end. It still expects to make a “significant” full-year loss after a $184m deficit in the first quarter.

Continental’s passenger revenue rose 14.1 per cent in the third quarter, ahead of the 5.6 per cent rise in capacity as it secured better prices from customers. The 7.6 per cent rise inaverage domestic passenger revenues continued the trend whichemerged in the broader industry in the second quarter.

However, the standout was a 25.7 per cent rise in average revenues from transatlantic routes, the focus of the airline’s expansion. However, some analysts are concerned that the general push by US airlines to switch aircraft from domestic to international routes will “cannibalise” the more favourable revenue environment in overseas markets. Delta on Tuesday outlined plans to expand to become the largest transatlantic operator.

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