Continental Posts Big Loss, Cites Everything

And while revenue was flat, costs -- especially fuel costs -- were soaring. The company said that the war in Iraq helped boost fuel prices by 63.7% from last year's levels in the first quarter, resulting in an extra $135 million in costs. All told, operating costs in the first quarter were up 6.3% from last year. Usually, airlines can hedge potential increases, but weak airline industry balance sheets have left many exposed to the vagaries of the market. (For more on this phenomenon, please read TSC's earlier take on fuel prices and the industry.)

To control costs, Continental said it planned to make more cuts, in hopes of reaching $500 million annually in cost savings by 2004. The company didn't announce specifics on how to reach that goal, but said it would continue to cut staff and capacity as needed.

"We are not sitting idly by and waiting for the revenue picture to improve," said Jeff Misner, Continental's CFO. "Our goal is to align our cost structure with the revenue environment that exists today."

Continental will have to work harder to align its cost structure because it's flying more often to the international destinations, recently adding flights between Newark and Geneva, where fewer people are traveling. Continental's Pacific traffic, as charted by revenue per available seat mile, or RASM, was down 10.4%, despite the fact it was flying 8.3% more in available seat miles, or ASMs. Likewise, transatlantic RASM was down 6.6%, while the number of ASMs rose by 15.2%.

The negative tone in the report, especially the mentions of rising fuel costs and a drop in international traffic, could be a harbinger of themes to come this week. Continental is the first U.S. carrier to report earnings, followed by Delta Air Lines (DAL) and Northwest Airlines (NWAC) on Wednesday and Thursday, with the rest of the industry following suit next week.

Continental's code-share partners were weaker on the news. Delta was off 0.3% to $9.77, while Northwest was off 1.8% to $6.45.

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