Fuel Prices Send Continental to a Loss

The carrier plans to speed up the retirement of older aircraft and lower capacity by 5%.
By Ted Reed ,

Updated from 9:01 a.m. EDT

Continental Airlines

(CAL) - Get Report

said it sped up the retirement of older aircraft, shrinking capacity by 5%, after recording a first-quarter loss due to record fuel costs.

The carrier's actions mirrored those of American, a unit of

AMR

(AMR)

, which said on Wednesday that it will cut capacity and mothball some of its aging planes.

"In this fuel environment, we must reduce our domestic capacity to help reduce our losses in the domestic system," said President Jeff Smisek in a prepared statement.

Continental's quarterly loss, after one-time items, was $85 million, or 86 cents a share. Analysts surveyed by Thomson Financial had expected a loss of 93 cents. Revenue rose 12.3% to $3.6 billion and was in line with estimates.

Fuel costs rose 53%, adding $433 million in year-over-year expenses. Citing "record high fuel prices, a weakening economy and a weak dollar," Continental said it will take out 5% of its capacity starting this fall, so that 2008 mainline growth will be 2%. In 2009, capacity isn't expected to change.

As leases expire between September 2008 and April 2009, 14 additional 737-300s will be removed from the fleet. They will join 34 older 737s scheduled for removal this year and next. Regional jet capacity will also decline beginning in the fall.

The company will continue acquisitions of newer aircraft, taking 32 new 737-800s and 900ERs this year. Next year, Continental will get 18 of the 900s and two 777-ERs.

During the quarter, consolidated revenue per available seat mile rose 7%. Capacity was up 4.1%, and load factor was 78.5%, slightly below the record set a year earlier. Mainline RASM climbed 6.7% as capacity rose 4.8%, led by an 8.8% gain in the Pacific and an 8.3% domestic increase.

Mainline cost per available seat mile, holding fuel prices constant, fell by 0.3%. With fuel and special items, CASM rose by 11.6%. In addition to capacity cuts, the carrier said it will seek to reduce annual costs by $200 million.

Know What You Own:

AMR operates in the airline industry, and some of the other stocks in its field include

JetBlue

(JBLU) - Get Report

,

Delta

(DAL) - Get Report

,

UAL

(UAUA)

and

US Airways

(LCC)

. These stocks were recently trading at $4.88, -1.21%, $8.60, -0.23%, $22.29, -2.49% and $7.87, -2.24% respectively. For more on the value of knowing what you own, visit TheStreet.com's

Investing A-to-Z

section.

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