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Continental Airlines Announces Second Quarter Loss - Atascocita

Continental Airlines Announces Second Quarter Loss - Atascocita

Published: Jul 21, 2009, 3:00pm

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Continental Airlines (NYSE: CAL) today reported a second quarter 2009 net loss of $213 million ($1.72 diluted loss per share). Excluding $44 million of previously announced special charges, Continental recorded a net loss of $169 million ($1.36 diluted loss per share).

Second quarter results were adversely affected by significant declines in high yield traffic as many business travelers curtailed travel or purchased lower yield economy tickets due to the weakened economy. In addition, the H1N1 virus reduced second quarter consolidated passenger revenue by an estimated $50 million. Fuel expense declined $762 million (46.1 percent) in the second quarter 2009 compared to the second quarter 2008, while revenue declined $918 million compared to the same period.

In response to the significant decline in revenue, Continental is implementing a number of measures to raise revenues and reduce costs that are designed to achieve approximately $100 million in annual benefits when fully implemented in 2010 including:

    --  Eliminating approximately 1,700 positions across the company,
        including management and clerical positions.  This is in addition to
        the previously announced elimination of 500 reservation agent
        positions and special company offered leaves of absence extended for
        700 flight attendants.   Continental is offering employees voluntary
        programs to minimize the number of involuntary furloughs and
        reductions in force.
    --  Increasing domestic checked baggage fees by $5 for customers who do
        not prepay those fees online.  This change is effective immediately
        for travel Aug. 19, 2009, and beyond.
    --  Increasing the telephone reservation booking service fee by $5
        effective immediately.

    --  Other revenue initiatives to be announced when implemented

"My co-workers are doing a great job of working together to focus on customer service despite significant challenges currently facing our industry," said Larry Kellner, chairman and chief executive officer. "While the unit revenue decline appears to be bottoming out, it is doing so at low levels and we must take aggressive steps to increase revenue and reduce costs. The most difficult changes will be the employee reductions that we are forced to make throughout the company."

Second Quarter Revenue and Capacity

Total revenue for the quarter was $3.1 billion, a decrease of 22.7 percent compared to the same period in 2008. Passenger revenue for the quarter fell 24.2 percent ($883 million) compared to the same period last year due to lower fares and passenger traffic declines.

Consolidated revenue passenger miles (RPMs) for the second quarter decreased 6.4 percent year-over-year on a capacity decrease of 7.8 percent, resulting in a second quarter consolidated load factor of 82.7 percent, 1.3 points higher than the second quarter of 2008.

Consolidated yield for the second quarter decreased 19.1 percent year-over-year.

Consolidated passenger revenue per available seat mile (RASM) for the second quarter decreased 17.7 percent year-over-year.

Mainline RPMs in the second quarter of 2009 decreased 5.7 percent compared to the second quarter of 2008, on a capacity decrease of 7.3 percent year-over-year.

Mainline load factor was 83.2 percent, up 1.5 points year-over-year for the second quarter. Continental's mainline yield decreased 18.3 percent in the second quarter over the same period in 2008. As a result, second quarter 2009 mainline RASM was down 16.9 percent compared to the second quarter of 2008.

Passenger revenue for the second quarter of 2009 and period-to-period comparisons of related statistics by geographic region for the company's mainline operations and regional operations are as follows:

                                 Percentage Increase (Decrease) in
                            Second Quarter 2009 vs. Second Quarter 2008
                  Passenger -------------------------------------------
                   Revenue    Passenger
               (in millions)   Revenue     ASMs       RASM      Yield
                   -------      ----       ----       -----     ------

    Domestic       $1,167      (22.4)%     (9.5)%    (14.3)%    (15.9)%
    Trans-Atlantic    577      (28.3)%    (10.6)%    (19.8)%    (23.8)%
    Latin America     345      (20.8)%     (5.2)%    (16.5)%    (16.4)%
    Pacific           211      (12.3)%     12.8 %    (22.3)%    (18.9)%
    Total Mainline $2,300      (22.9)%     (7.3)%    (16.9)%    (18.3)%

    Regional         $467      (29.9)%    (11.8)%    (20.5)%    (20.1)%

    Consolidated   $2,767      (24.2)%     (7.8)%    (17.7)%    (19.1)%

Cargo revenue in the second quarter of 2009 decreased 37.9 percent ($50 million) compared to the same period in 2008, due to reduced freight volume and lower pricing.

Second Quarter Operations and Notable Accomplishments

During the quarter, employees earned $9 million in cash incentives for running the best on-

time operation among the major network carriers in May and June as reported by the U.S. Department of Transportation (DOT). Continental recorded an on-time arrival rate of 78.7 percent and a systemwide mainline segment completion factor of 99.6 percent during the quarter.

"My co-workers have done an impressive job running a good operation and delivering great service despite very high load factors, which put additional stress on the system," said Jeff Smisek, president and chief operating officer. "We will get through this global recession by working together and continuing to outperform our competitors."

The DOT approved the application for Continental to join the existing antitrust immunized alliance including United Airlines and eight other Star Alliance member carriers, ensuring effective global competition with other antitrust immunized alliances while encouraging the retention and growth of open skies between the U.S. and other nations. Continental remains focused on providing a seamless transition for its customers from the SkyTeam alliance to Star Alliance this fall.

During the quarter, Continental contributed $50 million to its defined benefit pension plans.

Continental continued to install DIRECTV on its aircraft during the quarter, with the new service now offered on 16 aircraft. DIRECTV gives customers the choice of 77 channels of live television programming -- more channels than any other carrier -- including live sports, news, weather and children's shows. The company expects to complete installation on its fleet of Boeing 737 Next-Generation and Boeing 757-300 aircraft by the first quarter of 2011.

Second Quarter Costs

Due to significantly lower jet fuel costs, Continental's mainline cost per available seat mile (CASM) decreased 12.9 percent (13.2 percent excluding special charges) in the second quarter compared to the same period last year. The mainline price of a gallon of fuel dropped 39.7 percent year-over-year and mainline fuel consumption fell by 9.4 percent. Holding fuel rate constant and excluding special items, second quarter 2009 mainline CASM increased 2.8 percent compared to the second quarter of 2008.

"Once again, the entire Continental team did an outstanding job controlling costs and

running an efficient operation in a challenging economic environment," said Zane Rowe, Continental's executive vice president and chief financial officer.

Fuel costs for the quarter were $762 million lower compared to the same period last year as a result of a decrease in fuel prices and lower volumes. Consolidated fuel price was $2.07 per gallon in the second quarter of 2009, of which $0.49 per gallon was related to fuel hedge losses. Consolidated fuel price was $3.46 per gallon in the second quarter 2008, which included $0.17 per gallon in fuel hedge gains. During the quarter, mainline fuel consumption decreased 9.4 percent compared to the same period last year, while mainline RPMs decreased only 5.7 percent compared to the same period.

Fleet Changes Continue to Improve Efficiency

Continental continued to improve fuel efficiency during the quarter by adding modern, fuel-efficient aircraft, equipped with winglets. During the quarter, Continental took delivery of two new Boeing 737-900ERs, one of which was painted with a retro livery to commemorate the airline's 75th anniversary. In addition, the company removed from service four Boeing 737-500s.

Continental is expected to take delivery of seven Boeing 737 aircraft in the second half of 2009. The company expects to remove 29 additional Boeing 737-300 and 737-500 aircraft from service by January 2010.

Cash and Liquidity

Continental ended the second quarter with $2.77 billion in unrestricted cash, cash equivalents and short-term investments.

On July 1, 2009, Continental completed the sale of $390 million of Pass Through Certificates, the first offering of its kind to close since the credit markets froze last year. A portion of the proceeds from the sale of the certificates will be used to finance the company's purchase of five new Boeing 737-900ERs expected to be delivered by the end of 2009. The remainder of the proceeds will be used for general corporate purposes. The Pass Through Certificates will be secured by a total of 17 of the company's aircraft.

In addition, Continental completed an agreement with a commercial bank to provide financing for two Boeing 737-900ER aircraft scheduled for delivery in July of 2009, one of which has already been delivered. The company has now completed financing arrangements for all of its new aircraft deliveries this year and has backstop financing available for all of its new aircraft deliveries in 2010.







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