Continental Airlines Reports Second Quarter

HOUSTON, July 17 /PRNewswire-FirstCall/—Continental Airlines (NYSE: CAL) today reported second quarter net income of $79 million ($1.10 diluted earnings per share) including a security fee reimbursement of $111 million, and a special charge of $8 million, both net of taxes. First Call consensus for the quarter, adjusted to include the security fee reimbursement and special charge, is $.69 earnings per share.
Second quarter results were adversely impacted by the war in Iraq and Severe Acute Respiratory Syndrome (SARS), and higher year-over-year fuel costs.
Operating income for the second quarter of 2003 was $238 million including the security fee reimbursement of $176 million ($111 million after taxes) and a $14 million ($8 million after taxes) special charge associated with the recently announced deferral of aircraft deliveries. In the second quarter of 2002, the company reported an operating loss of $115 million that included special charges of $164 million.
“We`ve improved our operating income compared to last year in spite of higher fuel costs and lower passenger revenue,” said Gordon Bethune, chairman and CEO. “I believe we`re doing the right things to be a survivor.”
Second quarter passenger revenue was $2.0 billion, 1.7 percent lower than the same period last year. The airline`s second quarter mainline capacity decreased 6.8 percent compared to the second quarter of 2002, largely due to the suspension of many international flights driven by decreased demand due to the war in Iraq and SARS.
Continental`s mainline load factor in the second quarter of 2003 increased 1.2 points to 76.5 percent, compared to the same period in 2002. In June, Continental reported an all-time record mainline load factor of 81.0 percent, 2.3 points above last year`s June load factor and 0.6 points above the previous record set in July 2000.
Revenue passenger miles for Continental`s regional operations (Continental Express) were up 45.2 percent on a capacity increase of 35.2 percent during the second quarter of 2003, helping to offset mainline revenue decreases. Regional load factors hit an all-time record of 70.2 percent in the second quarter of 2003, up 4.8 points over the same period last year.
Continental maintained its domestic length-of-haul adjusted yield and revenue per available seat mile (RASM) premiums to the industry during the second quarter, and reported an increase in mainline RASM of 0.5 percent year- over-year.
For the second quarter of 2003, Continental reported a U.S. Department of Transportation (DOT) on-time arrival rate of 85.4 percent and a completion factor of 99.8 percent. Continental reported 31 days without a single flight cancellation during the quarter. During the quarter the airline broke 10 of 12 operational records and in May also set a new all-time record for baggage performance, with a ratio of only 3.65 mishandled bags per 1,000 enplanements.
“Despite the war in Iraq and SARS distractions, our team of professional employees continued to work together to deliver our customers the very best service in the industry,” said Larry Kellner, president and chief operating officer. “Our long-term reliability continues to provide us with a revenue premium to the industry.” Continental, Delta and Northwest launched a new alliance in June, giving customers the ability to take advantage of frequent flyer programs and lounge benefits on all three carriers. In addition, Continental extended the duration and expanded the scope of its cooperative marketing agreement with KLM Royal Dutch Airlines, its primary European partner.
In June, Continental opened the first phase of its new 23-gate “Terminal E” at its largest hub, Bush Intercontinental Airport in Houston. The new facility features a spacious, modern design and conveniences for travelers, including a new selection of restaurants and shops, while giving Continental a platform for growing domestic and international service.
Continental continued to rack up multiple, record daily sales at its Web site,, as customers increasingly turn to the internet to purchase tickets, check in for flights and redeem OnePass rewards. sales in the first half of 2003 were 70 percent higher than the first half of 2002, and are expected to exceed $1 billion for the full year. Continental successfully began daily nonstop service between its Houston hub and Maui, Hawaii, Ft. Walton Beach, Florida, Morelia, Mexico and Edmonton, Canada.
Continental`s mainline cost per available seat mile (CASM) decreased 12.5 percent (15.1 percent decrease holding fuel rate constant) in the second quarter over the same period last year. Excluding the security fee reimbursement and fleet impairment losses and other special charges, Continental`s mainline CASM holding fuel rate constant increased 1.2 percent on 6.8 percent fewer ASMs in the second quarter of 2003 compared to the second quarter of 2002. CASM holding fuel rate constant and excluding the security fee reimbursement, fleet impairment losses and other special charges, provides management and investors the ability to measure and monitor Continental`s cost performance on a consistent basis.
Continental continues to make progress on its cost saving initiatives. The company has identified a significant portion of its $500 million pre-tax benefits goal for 2004 and expects to realize more than $150 million of these benefits in 2003 as its initiatives are implemented more rapidly than planned.
“We continue to focus on achieving efficiencies and savings that will result in a stable, long-term competitive cost structure,” said Jeff Misner, Continental`s senior vice president and chief financial officer. “Every member of the Continental team is helping to ensure the survival of our company.”
Continental, in cooperation with its business partner, The Boeing Company, recently announced that it will defer firm deliveries of 36 Boeing 737 aircraft originally scheduled for delivery in 2005, 2006 and 2007, in response to continued weakness in the airline industry. As a result, Continental expects its mainline fleet to decline slightly through 2007. The airline also said that it is in discussions with Boeing regarding the terms of delivery of the 11 remaining 757-300 aircraft that Continental has on order.
Continental ended the second quarter with a record cash and short-term investments balance of more than $1.6 billion, of which $129 million is restricted. The company received proceeds of approximately $400 million from five financing transactions during the quarter, including its sale of $175 million of 5% Convertible Notes due 2023.