The rising cost of fuel has Continental Airlines ( CAL) concerned about its return to profitability, but the carrier is making progress lowering expenses as it posted a narrower first-quarter loss than Wall Street expected.

Before the start of trading on Monday, the carrier announced a first-quarter net loss of $124 million, or $1.88 a share, which includes $35 million in previously announced charges. The loss was a 44% improvement from last year's loss of $3.38 a share.

Excluding items, which is how Wall Street views the company, Continental lost $89 million, or $1.36 a share, in the first quarter, which easily topped analysts' consensus estimate of $1.43 a share and was half the loss of $2.75 a share it posted last year.

Revenue came in at $2.27 billion, up 11.1% from the year-ago $2 billion, driven by a 35% increase in revenue from its regional operation ExpressJet ( XJT), which handles smaller markets.

"We've made tremendous progress removing nonvalue-added costs from our operations while maintaining a superior product," said Gordon Bethune, chairman and CEO. "The outrageously high cost of fuel remains a challenge to our return to profitability."

If fuel prices were at Continental's five-year average instead of hovering near $36 a barrel, the company said it would have saved $102 million in the fourth quarter. But while expenses rose 6.1% in the first quarter, fuel costs actually fell 8% over last year while labor costs dropped 11.6%. All told, Continental's cost per available seat mile, or CASM, came in at 9.76 cents, down 4.8% from last year.

The rising first-quarter expenses were primarily due to an accounting change with the way Continental treats ExpressJet, the regional carrier it spun off in November. Unlike last year, Continental added a $317 million expense line item related to the purchase of ExpressJet's regional capacity. Without it, overall costs would have fallen vs. last year.

Fueled by Continental's regional flying increase, ExpressJet announced first-quarter net income of $28.7 million, or 53 cents a share, topping the 50 cents expected by Wall Street. Revenue came in at $364 million, up 19% from $307 million a year ago.

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