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Continental Airlines Announces Second Quarter Loss
Record fuel prices hurt results for quarter
HOUSTON, July 17, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Continental Airlines
(NYSE: CAL) today reported a second quarter 2008 net loss of $3 million ($0.03
diluted loss per share). Excluding $22 million of previously announced net
after tax special items, Continental recorded a net loss of $25 million ($0.25
diluted loss per share).
The combination of record high fuel prices, weakening economic conditions
and a weak dollar has resulted in the worst financial environment for U.S.
network carriers since the 9/11 terrorist attacks.
"My co-workers are doing a great job working through the significant
challenges facing our industry," said Larry Kellner, Continental's chairman
and chief executive officer. "We will continue to work together to react to
the market and maintain our focus on providing quality service to customers."
In response to these challenges, Continental implemented a number of
initiatives in the second quarter of 2008 to maintain its competitive position
in the industry and bolster its cash balance including:
-- Announcing capacity reductions beginning in September 2008, which
Continental expects will result in a 10-percent decline in domestic mainline
capacity, a 15.4-percent decline in domestic mainline departures and a
6.7-percent decline in consolidated capacity in the fourth quarter 2008
compared to the same period 2007
-- Accelerating the retirement of 67 Boeing 737-300 and 737-500 aircraft,
removing a majority of the least fuel efficient aircraft from its mainline
fleet by the end of 2009, driving the difficult decision to eliminate
approximately 3,000 positions across all work groups
-- Entering into a new seven-year capacity purchase agreement with
ExpressJet Airlines, Inc. to provide regional jet service at lower rates,
resulting in approximately $50 million of annual savings
-- Raising approximately $900 million through a variety of initiatives
including an amended credit card marketing agreement, issuance of common
stock, sale of Continental's remaining equity interest in Copa Holdings, S.A.
(Copa) and several secured borrowings
-- Entering into framework agreements for a planned transition to the
Star Alliance, linking worldwide networks and services of alliance members
including United, Lufthansa, Air Canada, Singapore, ANA and Air China, to
benefit customers and create revenue opportunities, cost savings and other
efficiencies
-- Implementing a new checked bag policy charging non-Elite customers on
certain economy-class tickets a $25 service fee for a second checked bag, and
numerous fuel surcharge and fare increases
Second Quarter Revenue and Capacity
Total revenue for the quarter of $4.0 billion increased 9.0 percent ($334
million) over the same period in 2007, as a result of increased fuel
surcharges on passenger tickets and on cargo, as well as international growth,
increased fees and fare increases. Passenger revenue grew 7.5 percent ($254
million) compared to the second quarter of last year.
"Despite solid operational and financial performance, we were unable to
generate enough revenue to keep pace with the stratospheric increase in fuel
prices," said Jeff Smisek, president. "We will continue to take actions to
increase our revenue and decrease our costs, while preserving our culture and
core product integrity."
Consolidated revenue passenger miles (RPMs) for the quarter increased 0.5
percent year-over-year on a capacity increase of 2.7 percent, resulting in a
second quarter consolidated load factor of 81.4 percent, 1.8 points below the
second quarter record set in 2007.
Consolidated yield for the quarter increased 7.0 percent year-over-year.
Consolidated revenue per available seat mile (RASM) for the quarter increased
4.6 percent year-over-year due to increased yields.
Mainline RPMs in the second quarter of 2008 decreased 0.2 percent compared
to the second quarter 2007, on a capacity increase of 2.0 percent. Mainline
load factor was 81.7 percent, down 1.8 points year-over-year. Mainline yield
increased 6.0 percent over the same period in 2007. As a result, second
quarter 2008 mainline RASM was up 3.8 percent over the second quarter of 2007.
Passenger revenue for the second quarter of 2008 and period-to-period
comparisons of related statistics by geographic region for the company's
mainline operations and regional operations are as follows:
Percentage Increase (Decrease) in
Passenger Second Quarter 2008 vs. Second Quarter 2007
Revenue Passenger
(in millions) Revenue RASM ASMs
Domestic $1,504 2.1% 5.2% (2.9)%
Trans-Atlantic 805 12.4% (1.3)% 14.0%
Latin America 435 11.4% 6.3% 4.8%
Pacific 240 0.0% 7.4% (6.9)%
Total Mainline $2,984 5.8% 3.8% 2.0%
Regional $666 15.6% 6.4% 8.6%
Consolidated $3,650 7.5% 4.6% 2.7%
Second Quarter Operational Accomplishments
During the quarter, Continental recorded a U.S. Department of
Transportation (DOT) on-time arrival rate of 73.1 percent and a systemwide
mainline segment completion factor of 99.5 percent.
For the fifth straight year, Continental was named the "Best Airline in
North America" at the 2008 OAG Airline of the Year Awards.
In conjunction with the Transportation Security Administration (TSA),
Continental expanded its paperless boarding pass pilot program, already in
place at its Houston hub, to include its New York hub at Newark Liberty
International Airport as well as Washington National Airport and Boston's
Logan International Airport. The program allows customers to receive boarding
passes electronically on their cell phones or PDAs, which are scanned by TSA
security officers at the checkpoint and can be used to board Continental's
flights, eliminating the need for paper boarding passes.
During the quarter, Continental launched the first-ever nonstop seasonal
service between its hub at Cleveland Hopkins International Airport and Charles
de Gaulle Airport in Paris, France.
High Fuel Costs Taking a Toll
Continental's mainline cost per available seat mile (CASM) increased 15.1
percent (down 4.8 percent holding fuel rate constant and excluding special
charges) in the second quarter compared to the same period last year. The
company's average price per mainline gallon of fuel, including fuel taxes,
increased 66.2 percent year-over-year.
"We had another quarter of outstanding cost control excluding the impact
of fuel," said Jeff Misner, Continental's executive vice president and chief
financial officer. "The entire team continues to impress me with their
ability to find new ways to do things better and more efficiently, helping us
mitigate rising fuel costs."
Record-high jet fuel prices are adversely affecting the company's
financial results. In the second quarter of 2008, the price of a barrel of
West Texas Intermediate crude oil averaged almost $119 per barrel compared to
less than $65 per barrel for the same period last year, with crude oil prices
peaking at $140.21 per barrel and Gulf Coast jet fuel peaking at $169.79 per
barrel during the quarter. Mainline fuel costs increased 66 percent ($542
million) in the second quarter compared to the second quarter of 2007.
During the quarter, Continental also incurred additional fuel costs of
$124 million year-over-year that were included as part of its regional
capacity purchase cost. As a result, the total year-over-year impact of
higher fuel costs on the company for the second quarter was $666 million,
accounting for the company's increase in operating expenses compared to the
second quarter of 2007. Continental's annualized fuel costs increase by
approximately $43 million for each $1-per-barrel rise in the price of crude
oil.
During the quarter, Continental recognized a total of $112 million in fuel
hedging gains. Of this total, $79 million of realized gains were included as
operating expenses when the underlying fuel hedged was used. The remaining
$33 million are unrealized gains which relate to fuel hedges for the third
quarter of 2008 and beyond which under accounting rules were required to be
recognized in the second quarter. This $33 million of gains, which are
included in the company's statement of operations under nonoperating income
(expense), were caused by the company's hedge positions in crude and heating
oil experiencing a relatively higher increase in value than the jet fuel being
hedged.
As of July 16, 2008, Continental had hedged approximately 63 percent of
the company's projected consolidated fuel requirements for the third and
fourth quarters of 2008, and had hedged approximately 29 percent of its
projected consolidated fuel requirements for the first half of 2009.
Other Financial Accomplishments
During the quarter, Continental completed a public offering of 11 million
shares of its common stock, raising net proceeds of $162 million, and sold its
remaining equity stake in Copa, raising net proceeds of $149 million.
In June 2008, Continental amended its bankcard joint marketing agreement
with Chase bank, under which Chase purchases frequent flyer mileage credits to
be earned by OnePass members for making purchases using a Continental Airlines
credit card issued by Chase. Under the agreement, Continental received a
payment of $413 million, of which $235 million related to the advance purchase
of frequent flyer mileage credits and the balance of which is in consideration
of certain other commitments with respect to the co-branding relationship,
including the extension of the term of the agreement until December 31, 2016.
During the second quarter, Continental closed transactions to borrow
approximately $208 million under various debt agreements, secured by aircraft
purchase agreements and mainline jet aircraft. The company received net
proceeds of $173 million and expects to receive the remaining borrowings in
the fourth quarter of 2008.
Continental ended the second quarter with approximately $3.4 billion in
unrestricted cash and short-term investments, excluding all student loan
related auction rate securities.
Fleet Changes Improve Efficiency
The company continues to improve fuel efficiency by adding modern, fuel
efficient aircraft to its fleet and installing winglets on additional
aircraft. During the quarter, the company took delivery of six new Boeing
737-900ER aircraft, which have one of the lowest operating costs in the fleet
and allow Continental to serve high demand markets more efficiently. The
company also took delivery of four new Boeing 737-800 aircraft in the quarter.
Continental's young, fuel efficient fleet provides a natural hedge against
rising jet fuel costs. The carrier is about 35 percent more fuel efficient
per mainline revenue passenger mile than it was in 1997.
During the quarter, Continental installed winglets on two of the company's
737-500s and seven 737-900 aircraft, and now has winglets on 244 of its
mainline aircraft. All of the company's 737-700s, 800s, 900ERs and 757-200s
have winglets, as do select airplanes from Continental's 737-300,
-500 and -900 series fleets. Winglets increase aerodynamic efficiency and
decrease drag, reducing fuel consumption and emissions by up to five percent.
In addition, Continental announced it will accelerate the retirement of 67
Boeing 737-300 and 737-500 aircraft from its fleet by the end of 2009, with 27
of these aircraft to be removed from service in September 2008.
Other Matters
Continental contributed $24 million to its defined benefit pension plans
during the second quarter of 2008. On July 16, 2008, Continental contributed
an additional $18 million for a total of $102 million in contributions to its
defined benefit pension plans this year, satisfying the company's required
minimum contributions for calendar year 2008. Given current market
conditions, the company does not plan to make additional contributions this
year.
Continental entered into a new seven-year capacity purchase agreement
(CPA) with ExpressJet, effective July 1, 2008. Under the amended CPA,
ExpressJet will provide regional jet service for Continental at rates that are
lower than rates under its prior agreement and more competitive with those
offered by other regional service providers. The amended CPA covers a minimum
of 205 regional jets in the first year and adjusts to 190 regional jets
thereafter, subject to lease expirations.
In June 2008, Continental entered into a framework agreement with United
Airlines to link networks and cooperate extensively on frequent flier
programs, lounges, facility utilization, information technology and
procurement services worldwide to the benefit of customers. In addition,
Continental will apply to join the already established antitrust immunized
alliance among United, Lufthansa, Air Canada and certain other members of the
Star Alliance, with the goal of entering into international joint ventures
with United and other members of the Star Alliance.
Corporate Background
Continental Airlines is the world's fifth largest airline. Continental,
together with Continental Express and Continental Connection, has more than
3,000 daily departures throughout the Americas, Europe and Asia, serving 140
domestic and 139 international destinations. More than 550 additional points
are served via SkyTeam alliance airlines. With more than 46,000 employees,
Continental has hubs serving New York, Houston, Cleveland and Guam, and
together with Continental Express, carries approximately 69 million passengers
per year. Continental consistently earns awards and critical acclaim for both
its operation and its corporate culture. For more company information, visit
continental.com.
Continental Airlines will conduct a regular quarterly telephone briefing
today to discuss these results and the company's financial and operating
outlook with the financial community and news media at 9:30 a.m. CT/10:30 a.m.
ET. To listen to a live broadcast of this briefing, go to
continental.com/About Continental/ Investor Relations.
This press release contains forward-looking statements that are not
limited to historical facts, but reflect the company's current beliefs,
expectations or intentions regarding future events. All forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. For examples
of such risks and uncertainties, please see the risk factors set forth in the
company's 2007 Form 10-K and its other securities filings, including any
amendments thereto, which identify important matters such as the consequences
of the company's high leverage, the significant cost of aircraft fuel, its
transition to a new global alliance, delays in scheduled aircraft deliveries,
its high labor and pension costs, service interruptions at one of its hub
airports, disruptions to the operations of its regional operators, disruptions
in its computer systems, and industry conditions, including the airline
pricing environment, industry capacity decisions, industry consolidation,
terrorist attacks, regulatory matters, excessive taxation, the availability
and cost of insurance, public health threats, an economic downturn in the U.S.
and global economies and the seasonal nature of the airline business. The
company undertakes no obligation to publicly update or revise any
forward-looking statements to reflect events or circumstances that may arise
after the date of this press release, except as required by applicable law.
CONTINENTAL AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(In millions, except per
share data) (Unaudited)
Three Months % Six Months %
Ended June 30, Increase/ Ended June 30, Increase/
2008 2007 (Decrease) 2008 2007 (Decrease)
Operating Revenue:
Passenger
(excluding
fees and taxes
of $408, $391,
$784 and $737) $3,650 $3,396 7.5% $6,873 $6,291 9.3%
Cargo 132 109 21.1% 254 216 17.6%
Other, net 262 205 27.8% 487 382 27.5%
4,044 3,710 9.0% 7,614 6,889 10.5%
Operating Expenses:
Aircraft fuel and
related taxes 1,363 821 66.0% 2,411 1,505 60.2%
Wages, salaries
and related
costs 704 842 (16.4)% 1,432 1,568 (8.7)%
Regional capacity
purchase, net 589 444 32.7% 1,095 873 25.4%
Aircraft rentals 246 248 (0.8)% 493 496 (0.6)%
Landing fees and
other rentals 210 190 10.5% 418 384 8.9%
Distribution
costs 194 176 10.2% 375 337 11.3%
Maintenance,
materials and
repairs 167 169 (1.2)% 326 313 4.2%
Depreciation and
amortization 108 101 6.9% 215 200 7.5%
Passenger services 107 99 8.1% 203 189 7.4%
Special charges(A) 58 7 NM 50 18 NM
Other 369 350 5.4% 733 679 8.0%
4,115 3,447 19.4% 7,751 6,562 18.1%
Operating Income
(Loss) (71) 263 NM (137) 327 NM
Nonoperating Income
(Expense):
Interest expense (88) (97) (9.3)% (179) (193) (7.3)%
Interest
capitalized 8 6 33.3% 17 11 54.5%
Interest income 16 41 (61.0)% 40 77 (48.1)%
Income from other
companies 6 5 20.0% 10 10 -
Gain on sale
of investments(A) 78 - NM 78 7 NM
Other, net (B) 5 14 (64.3)% - 15 (100.0)%
25 (31) NM (34) (73) (53.4)%
Income (Loss) before
Income Taxes (46) 232 NM (171) 254 NM
Income Tax Benefit
(Expense) (C) 43 (4) NM 88 (4) NM
Net Income (Loss) $(3) $228 NM $(83) $250 NM
Earnings (Loss)
per Share:
Basic $(0.03) $ 2.35 NM $(0.84) $2.60 NM
Diluted $(0.03) $ 2.03 NM $(0.84) $2.26 NM
Shares used for
Computation:
Basic 99 97 2.1% 99 96 3.1%
Diluted 99 115 (13.9)% 99 115 (13.9)%
(A) The company recorded special items for the three and six months ended
June 30, 2008 and 2007 as follows (in millions):
Three Months Year Ended
Ended June 30, June 30,
2008 2007 2008 2007
Aircraft related charges
and gains on sales of
aircraft $41 $- $33 $6
Other costs related to
capacity reductions 7 - 7 -
Pension settlement charges - 7 - 12
Other 10 - 10 -
Subtotal special charges $58 $7 $50 $18
Gain on sale of Copa
Holdings, S.A. $78 $- $78 $-
Gain on sale of
ExpressJet Holdings, Inc. - - - 7
Gain on sale of investments $78 $- $78 $7
(B) Other, net includes a special loss of $29 million in the three and six
months ended June 30, 2008 associated with a write-down of student
loan-related auction rate securities. Also included in other, net for
the three months ended June 30, 2008 and 2007 and the six months ended
June 30, 2008 and 2007 are $33 million, $10 million, $33 million and
$11 million, respectively, of gains related to fuel hedge
ineffectiveness.
(C) During the three and six months ended June 30, 2008, the company
recorded a non-cash income tax credit of $28 million resulting from
higher utilization of net operating loss carryforwards than had
previously been anticipated.
CONTINENTAL AIRLINES, INC. AND SUBSIDIARIES
STATISTICS
Three Months % Six Months %
Ended June 30, Increase/ Ended June 30, Increase/
2008 2007 (Decrease) 2008 2007 (Decrease)
Mainline Operations:
Passengers
(thousands) 13,000 13,417 (3.1)% 25,196 25,362 (0.7)%
Revenue
passenger
miles (millions) 22,017 22,065 (0.2)% 41,940 41,155 1.9%
Available seat
miles (millions) 26,933 26,415 2.0% 52,211 50,538 3.3%
Cargo ton
miles (millions) 263 253 4.0% 524 507 3.4%
Passenger load
factor:
Mainline 81.7% 83.5% (1.8)pts. 80.3% 81.4% (1.1)pts.
Domestic 84.7% 85.9% (1.2)pts. 83.4% 83.6% (0.2)pts.
International 78.8% 81.0% (2.2)pts. 77.3% 79.1% (1.8)pts.
Passenger revenue
per available
seat mile (cents) 11.08 10.67 3.8% 10.85 10.32 5.1%
Total revenue per
available seat
mile (cents) 12.49 11.85 5.4% 12.22 11.51 6.2%
Average yield per
revenue passenger
mile (cents) 13.55 12.78 6.0% 13.50 12.67 6.6%
Cost per available
seat mile (CASM)
(cents) (A) 12.45 10.82 15.1% 12.13 10.69 13.5%
Special charges
per available
seat mile (cents) 0.16 0.03 NM 0.09 0.04 NM
CASM, holding
fuel rate constant
(cents) (A) 10.43 10.82 (3.6)% 10.44 10.69 (2.3)%
Average price per
gallon of fuel,
including fuel
taxes (cents) 345.45 207.89 66.2% 313.40 199.10 57.4%
Fuel gallons
consumed
(millions) 395 395 - 769 756 1.7%
Actual aircraft
in fleet at end
of period 375 368 1.9% 375 368 1.9%
Average length
of aircraft
flight (miles) 1,497 1,448 3.4% 1,477 1,433 3.1%
Average daily
utilization of
each aircraft
(hours) 11:34 11:55 (2.8)% 11:23 11:32 (1.3)%
Regional
Operations: (B)
Passengers
(thousands) 4,962 4,703 5.5% 9,205 8,934 3.0%
Revenue passenger
miles (millions) 2,729 2,558 6.7% 5,085 4,918 3.4%
Available seat
miles (millions) 3,450 3,177 8.6% 6,548 6,303 3.9%
Passenger load
factor 79.1% 80.5% (1.4)pts. 77.7% 78.0% (0.3)pts.
Passenger revenue
per available
seat mile (cents) 19.31 18.14 6.4% 18.47 17.07 8.2%
Average yield per
revenue passenger
mile (cents) 24.41 22.53 8.3% 23.78 21.88 8.7%
Actual aircraft
in fleet at end
of period (C) 278 257 8.2% 278 257 8.2%
Consolidated
Operations
(Mainline and
Regional):
Passengers
(thousands) 17,962 18,120 (0.9)% 34,401 34,296 0.3%
Revenue passenger
miles (millions) 24,746 24,623 0.5% 47,025 46,073 2.1%
Available seat
miles (millions) 30,383 29,592 2.7% 58,759 56,841 3.4%
Passenger load
factor 81.4% 83.2% (1.8)pts. 80.0% 81.1% (1.1)pts.
Passenger revenue
per available
seat mile (cents) 12.01 11.48 4.6% 11.70 11.07 5.7%
Average yield per
revenue passenger
mile (cents) 14.75 13.79 7.0% 14.62 13.65 7.1%
(A) Includes impact of special charges.
(B) Consists of flights operated under capacity purchase agreements
with Continental's regional carriers ExpressJet, Colgan, Chautauqua
and CommutAir.
(C) Includes aircraft operated by all carriers under capacity purchase
agreements but excludes any aircraft operated by ExpressJet outside
the scope of the ExpressJet capacity purchase agreement.
CONTINENTAL AIRLINES, INC. AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES
Three Months
Ended June 30, 2008
Net Income (Loss) (in millions)
Net income (loss) $(3)
Special items:
Special charges, net of tax 37
Gain on sale of investments, net of tax (49)
Write down of student loan-related auction
rate securities, net of tax 18
Special tax credit (28)
Total special items, net of tax (22)
Net loss, excluding special items (A) $(25)
Three Months
Ended June 30, 2008
Earnings (Loss) per Share
Diluted earnings (loss) per share $(0.03)
Special items:
Special charges, net of tax 0.37
Gain on sale of investments, net of tax (0.49)
Write down of student loan-related auction
rate securities, net of tax 0.18
Special tax credit (0.28)
Diluted loss per share, excluding special items (A) $(0.25)
Three Months % Six Months %
Ended June 30, Increase/ Ended June 30, Increase/
2008 2007 (Decrease) 2008 2007 (Decrease)
CASM Mainline
Operations (cents)
Cost per available
seat mile (CASM) $12.45 $10.82 15.1% $12.13 $10.69 13.5%
Less: Current
year fuel cost
per available
seat mile (B) (5.06) - NM (4.62) - NM
Add: Current
year fuel cost
at prior year
fuel price per
available seat
mile (B) 3.04 - NM 2.93 - NM
CASM, holding
fuel rate
constant (A) 10.43 10.82 (3.6)% 10.44 10.69 (2.3)%
Less: Special
charges (0.16) (0.03) NM (0.06) (0.04) NM
CASM, holding
fuel rate
constant and
excluding
special
charges (A) $10.27 $10.79 (4.8)% $10.38 $10.65 (2.5)%
(A) These financial measures provide management and investors the ability
to measure and monitor Continental's performance on a consistent
basis.
(B) Both the cost and availability of fuel are subject to many economic
and political factors and are therefore beyond the company's control.
SOURCE Continental Airlines
http://www.continental.com
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