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Huge Quarter at Continental

The airline overcomes high fuel costs to surge past analysts' profit estimates.
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Updated from 5:13 p.m. EDT

Continental Airlines

(CAL) - Get Free Report

overcame surging jet fuel costs to report a third-quarter profit Tuesday that blew past Wall Street's estimates.

The nation's sixth-largest airline said it earned $61 million, or 80 cents a share, in the quarter ended Sept. 30, compared with a year-ago loss of $18 million, or 29 cents a share.

Results included a $3 million charge. Without it, Houston-based Continental earned $64 million, or 83 cents a share, more than triple the 27-cent profit forecast from Thomson First Call. Revenue was $3 billion, up 15.3% from $2.6 billion a year before and a bit better than the $2.99 billion consensus estimate.

After the earnings announcement, shares of Continental surged 31 cents, or 2.6%, to $12.20 in extended trading.

The stronger revenue was the result of this year's industry fare hikes and Continental's expansion of lucrative international routes. The carrier also had lower labor costs than last year, thanks to concessions most of its employees agreed to earlier this year.

Nevertheless, high fuel prices remain painful. Continental said it paid $684 million to fill its mainline fleet, which excludes small regional jets. That was 65.2% higher than its year-ago fuel tab, and jet kerosene -- traditionally an airline's second-biggest expense behind labor -- has become Continental's top cost.

In the week following Hurricane Rita, a barrel of jet fuel increased nearly $32, hitting $124 just before the quarter ended.

Continental's results appear all the more impressive because hurricanes Katrina and Rita hurt operations. Rita forced the airline to suspend flights for 36 hours at its biggest hub, in Houston, costing the company $25 million during the quarter.

"My co-workers did an incredible job to overcome tremendous challenges posed by hurricanes Katrina and Rita," said Larry Kellner, chairman and chief executive officer. "Continental continues to grow and outdistance its competitors because of my co-workers' economic sacrifices, teamwork and tireless dedication."

Passenger traffic, measured in revenue passenger miles, was up 9.2% from last year on an 8.8% increase in overall capacity. That combination allowed Continental to fill 81.1% of its seats on average. Unit revenue increased 6% from last year, as average fares rose 5.6%.

Continental ended the third quarter with $1.92 billion in unrestricted cash and short-term investments, in line with the carrier's own guidance. It will need that hoard as it enters the colder fourth quarter, when slower travel demand causes airlines to burn cash.

Continental also reiterated that it would incur a significant loss for the fourth quarter and for all of 2005.