Continental Airlines posts 1Q loss

Continental Airlines Inc. said Wednesday it lost $136 million in the first quarter as traffic fell and business travelers saved money by moving from first-class to the coach cabin.

The Houston-based carrier joined a growing list of airlines that lost money in the first quarter, even though they were helped by a sharp drop in fuel prices from a year ago.

"This was a very tough quarter no matter how you look at it," said Chairman and Chief Executive Lawrence Kellner.

Continental also said it expects second-quarter bookings to be flat to up 1 percentage point over the same period last year. That statistic measures bookings as a percentage of available seats, so it rises as Continental cuts capacity.

Shares of Continental fell $1.15, or 7.7 percent, to $13.85 in midday trading.

Continental lost $1.10 per share in the quarter ended March 31, compared with a year-ago loss of $82 million or 82 cents per share.

Excluding $4 million in charges related to aircraft, Continental said it would have lost $132 million, or $1.07 per share.

Analysts, who typically exclude one-time items from their calculations, expected a loss of $1.19 per share, according to a survey by Thomson Reuters.

Revenue fell to $3 billion from $3.57 billion a year ago, barely topping analysts' forecast of $2.98 billion. Sales fell across every region, with the sharpest declines in the U.S. and trans-Atlantic routes, with a more modest decline in Latin America and the Pacific.

Traffic in the first quarter fell 11.2 percent from a year ago, and planes were not as full even though Continental cut flights.

The Continental report followed a pattern seen at American Airlines parent AMR Corp. last week and again Tuesday at Delta Air Lines Inc. and United parent UAL Corp. All those carriers reported large first-quarter losses, but their results were not as dire as analysts had expected.

Airline stocks rallied Tuesday after the Delta and UAL results were posted, and they have doubled since hitting bottom in March. Still, the optimism on Wall Street was tempered by an uncertain outlook for travel in late spring and early summer, with a recession still hanging over the industry.

Jamie Baker, an analyst with JPMorgan, downgraded Continental shares to "neutral" from "overweight," or buy, saying he no longer believed the company will post a profit for the full year.

Baker said in a note to clients that while airlines' revenue trends may have improved in April, that could give way to May disappointment. He said that could force airlines to more aggressively raise capital, presumably to weather the downturn.

Continental said it ended the first quarter with $2.65 billion in unrestricted cash, cash equivalents and short-term investments, virtually unchanged from the $2.64 billion it held Dec. 31. The company said it expects to end the second quarter with $2.8 billion.

Continental, which operates its mainline brand plus regional affiliates, was helped that fuel prices fell sharply from a year ago. The company spent 41.8 percent less on fuel, down to $735 million from $1.26 billion in last year's first quarter.

The news was more grim on the revenue side, however. Continental blamed the 17 percent reduction on "significant declines" in passengers who bought higher-priced tickets, as many business travelers either stayed home or bought cheaper coach tickets.

Airlines have been cutting capacity - Continental reduced flying by 7.2 percent in the quarter - in hopes of regaining pricing power that they enjoyed last year. But that was before the worst of the recession, and airlines have been unable to raise fares despite recent attempts.

In a separate regulatory filing Wednesday, Continental said overall second-quarter bookings will be flat to up 1 percentage point over a year ago.

The company said bookings for U.S. flights in the next six weeks are running 2 to 3 percentage points higher than a year ago. Airlines have slashed prices to Europe, and Continental said trans-Atlantic bookings are up 4 to 5 percentage points. Pacific bookings are also up, but seats sold for Latin America flights are down, the company said in the filing.

Continental is jumping this year from one team of airline partners to another, the Star Alliance, which includes United and Lufthansa.

Kellner said the shift would mean $100 million a year in increased revenue for Continental because it will no longer have to share New York and Latin American markets with Delta, one of its current teammates on the SkyTeam alliance.

Continental is also equipping its international fleet with video-on-demand for TV shows and movies, and installing satellite TV on aircraft flown in the U.S. The live TV service will be free in first-class but cost $6 in coach.

Continental also plans to offer e-mail and text-messaging capability on flights but hasn't said what it would charge for the service.