Updated from 9:15 a.m. EDTContinental Airlines ( CAL) reported its highest quarterly profit in five years and said strong revenue trends will continue into the third quarter. The nation's fifth-largest airline said second-quarter net income was $198 million, or $1.84 a share, compared with year-earlier net income of $100 million and $1.26 a share, with the improvement fueled by increases in ticket prices and passenger loads. Excluding special charges, Continental earned $208 million, or $1.93 a share. Revenue totaled $3.51 billion. Analysts surveyed by Thomson Financial had expected earnings of $1.90 a share and revenue of $3.49 billion. Operating income more than doubled to $244 million, despite a $216 million increase in mainline fuel costs and a $60 million accrual for employee profit sharing. "Our plan is working and as a result, everyone wins," said CEO Larry Kellner, in a prepared statement. During a conference call, Kellner said he hasn't seen any slowdown any bookings despite higher ticket prices. "As recently as this week, bookings have been very strong," he said, and bookings through July continue to run ahead of last year. Although fuel prices remain a concern, Kellner said Continental retains an advantage over competitors because of a young, fuel-efficient fleet and an ability to maintain a fare premium. For the quarter, consolidated passenger revenue per available seat mile grew 11%. RASM growth ranged from 4.7% in trans-Atlantic markets to 12.4% in domestic markets and 16.6% in regional jet markets. Mainline load factor was a record 82.9%, up 2.5 points from a year earlier. Continental's mainline cost per available seat mile increased 8.1% in the second quarter compared with the same period last year, primarily due to record high fuel prices. Continental said it will continue to grow at rate of 5% to 7%. In 2007, the airline predicted, its mainline growth rate will be around 5%, with capacity expansion limited to two Boeing ( BA) 777 jets that will arrive early in the year.
While 2006 domestic growth was a bit higher than anticipated, next year's growth will have more of an international focus, Kellner said. Including regional operations, 2007 consolidated capacity growth will be 3% to 4%, as the airline replaces the 69 regional jets flown by ExpressJet ( XJT) with 40 to 50 regional jets flown by other vendors. Also, last month, Continental expanded an existing order for new Boeing aircraft. Deliveries begin in 2008. Continental hedged roughly 25% of its expected fuel requirements for the second quarter, resulting in an $11 million benefit. In addition, using crude oil swaps, the company has hedged around 33% of its fuel requirements for the third quarter with an average swap price of $73.18 a barrel. During the quarter, Continental recorded net special charges of $10 million, consisting of a $14 million settlement charge related to lump-sum payments to retiring pilots and a $4 million reduction of previous charges related to permanently grounded MD-80 aircraft. The airline ended the second quarter with about $2.5 billion in unrestricted cash and short-term investments.