Cost savings help lift Continental and American

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American Airlines and Continental Airlines, two US legacy carriers, reported modest profits yesterday as seasonally strong revenues and cost savings from labour agreements offset higher fuel prices.

The results came as many traditional airlines struggle to stay afloat amid record jet-fuel prices, a trend expected to contribute to billions of dollars of losses in the airline industry this year.

Soaring pension obligations and fierce price competition from low-cost rivals such as Southwest Airlines, which last week reported a 41 per cent increase in quarterly profits, have also hurt the legacy carriers.

Larry Kellner, Continental chief executive, said the group's return to profit was a direct result of cost savings from new contracts agreed by most of the airline's labour groups in March.

He warned that the high cost of jet fuel, which topped $70 a barrel last quarter, was likely to lead to a “substantial” net loss this year.

Jeff Misner, chief financial officer, said: “Our cost restructuring continues to show solid results but we're not out of the woods yet.” Mr Kellner said the airline would continue its expansion into more profitable international markets this year.

American also warned that fuel costs would continue to cast a shadow over results.

Cut-throat price competition has left US carriers unable to pass along rising fuel costs to their customers. Both Continental and American on Wednesday reported increased yields, or average fares, in the second quarter.

Last week several carriers matched a significant fare increase by Delta Air Lines after the third-biggest US carrier lifted its self-imposed cap on fares for one-way business flights. However, Continental warned yesterday that these increases had still failed to match the rising cost of fuel.

AMR, the parent company of American, made a profit of $58m, or 30 cents a share, in the second quarter its first profitable quarter, excluding exceptional items, in nearly five years. In the second quarter of 2004, the airline reported profits of $6m, including $31m in exceptional gains.

Continental reported a second-quarter net profit of $100m, or $1.26 a share, including an exceptional gain of $47m related to the treatment of shares in ExpressJet, a subsidiary. Excluding that gain, Continental made a quarterly profit of $53m, or 69 cents a share, well ahead of most estimates.

Other US airlines will release quarterly results this week. Delta, widely thought to be near bankruptcy, reports on Thursday. Northwest Airlines, which has said it might seek bankruptcy protection if it is unable to cut costs this year, reports next week.

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