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Continental Tops Profit Targets

Sales for the most recent quarter match estimates.

Updated from 9:09 a.m. EDT

Continental Airlines

(CAL) - Get Caleres, Inc. Report

said third-quarter profits rose, but executives expressed concerns about competitors' capacity increases along trans-Atlantic routes and in other markets.

The country's fourth-largest carrier said third-quarter income, excluding special items, was $146 million, or $1.36 a share. Revenue was $3.5 billion. Analysts surveyed by Thomson Financial had expected earnings of $1.22 a share on $3.5 billion in revenue.

Including a one-time $92 million gain on the sale of a portion of the company's investment in Copa Airlines, net income was $237 million, or $2.17 a share. Continental earned $61 million a year ago.

The airline said its trans-Atlantic revenue per available seat mile grew just 1.4% in the quarter, compared with consolidated RASM growth of 7.4%.

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has been growing rapidly in trans-Atlantic markets.

"We've seen and will continue to see downward pressure on yield and load factors," President Jeff Smisek said Thursday on a conference call. "That's just natural."

In other markets, said CEO Larry Kellner, network carriers have been retiring older aircraft, but "as fuel prices come down you may not see that trend move as quickly." Increased capacity could encourage fare sales, he suggested.

Given the potential capacity increases, "lower fuel prices are not a panacea," Smisek said. Continental said its own mainline capacity grew 8.6% in the quarter, while its consolidated capacity rose 9.1%.

Security concerns following a terrorist plot was foiled in August cost Continental about $25 million to $30 million, mainly as a result of a decline in bookings for close-in, short distance trips. Nevertheless, Kellner said load factor will likely increase slightly in the fourth quarter.

Mainline cost per available seat mile declined 0.8%, if fuel rates were constant and excluding employee profit-sharing accruals and special charges. Mainline fuel costs increased by $174 million compared with last year. CASM excluding fuel was 7.19 cents.