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A disappointing revenue report from



sent the airline sector into a tailspin Tuesday.

Continental reported late Monday that December unit revenue slumped from a year ago, even as passenger demand rose. The airline's monthly performance report draws close attention because Continental is the only major U.S. carrier to disclose monthly unit revenue data. Airline revenues have been sagging because of a glut of capacity and fierce price competition, and Continental's report suggests the situation isn't improving.

The Amex Airline Index slumped 4.2%. Continental was down $1.23, or 8.8%, to $12.73. Shares of American Airlines' parent



fell 57 cents, or 5.2%, to $10.47, while

Delta Air Lines


was off 12 cents, or 1.6%, to $7.44, and



declined 58 cents, or 5.3%, to $10.37. Shares of



were down just 8 cents, or 0.5%, to $15.99.

Continental said mainline unit revenue, as measured in revenue per available seat mile, or RASM, fell between 4.5% and 5.5% from a year earlier. Mainline statistics exclude flights by the airline's regional carriers. Consolidated RASM, which includes those flights, fell between 4.0% and 5.0%.

Continental said both figures were negatively affected by about 2 percentage points by the movement of Thanksgiving return traffic into November this year. They were also negatively affected by another 2 points by the timing of Christmas this year, which caused return traffic to occur in January instead of December, the airline said.

The report failed to meet analyst expectations. "Continental's mainline passenger RASM decrease was completely driven by poor yield performance," wrote Merrill Lynch's Michael Linenberg, who forecast a decline in December mainline RASM of 2.5% to 3.0%. "How bad are Continental's yields? Continental's December quarter yield may be flat to down vs. the September quarter -- an industry phenomenon, which has occurred only once in the last decade, and that was in 2001." (Yield measures unit revenue per occupied seat, while RASM measures unit revenue for all available seats.)

Linenberg is widening his fourth-quarter estimate for Continental's loss to $3.60 a share from $3.50. (Merrill Lynch does and seeks to do business with companies covered in its research reports.)

The sharp decline in Continental's unit revenues came even as the carrier reported increased passenger traffic and filled a record number of seats on its planes. Mainline traffic, a measure of passenger demand expressed in revenue passenger miles, or RPMs, increased 6.5% year over year to 5.5 billion, while mainline capacity, expressed in available seat miles, or ASMs, rose 6.1% to 7.1 billion.

Consolidated RPMs jumped 7.8% to 6.2 billion on a capacity increase of 7.5% to 8.1 billion.

Continental's mainline load factor, which measures the percentage of seats filled on its planes, was 77.3%, 0.3 points above December 2003, and its consolidated load factor was 76.5%, up 0.2 points from a year earlier. Both were records for December.

Other airlines followed Continental in releasing December traffic reports. Low-cost leader Southwest said traffic swelled 10.3% to 4.34 billion from December 2003. The company increased capacity even more, with available seat miles increasing 12.2% to 6.90 billion. Southwest said it filled an average of 62.9% of seats, down from 64.0% a year earlier.