Continental Airlines (NYSE: CAL) today reported third quarter net income of $133 million ($1.83 diluted earnings per share) including a $100 million after-tax gain from its disposition of ExpressJet stock. Excluding the gain from the disposition of ExpressJet stock, Continental`s earnings per share was $.49 for the quarter, which compares favorably to First Call consensus of $.43 earnings per share.
Third quarter operating results improved $128 million over last year due to strong summer traffic and continued benefits from the company`s cost-saving and revenue-generating initiatives. Operating income for the third quarter of 2003 was $174 million compared to $46 million for the third quarter of 2002.
“Even after selling ExpressJet shares and receiving the government security fee reimbursement, we still have a year-to-date loss with a tough six month period ahead of us,” said Gordon Bethune, Chairman and CEO. “We remain focused on being a long-term survivor by further reducing our costs to achieve a breakeven position in 2004.”
Third Quarter Revenue and Capacity -
Passenger revenue for the quarter was $2.2 billion, 7.4 percent higher than the same period last year, due to improved mainline load factors and increased revenue from regional operations (Continental Express). Mainline yield was slightly down year-over-year, declining 0.7 percent, due to weakness in Latin America and the Pacific. Mainline revenue passenger miles increased 3.2 percent. Continental further decreased its capacity by 2.3 percent in the third quarter 2003 compared to the third quarter of 2002.
Continental set an all-time record mainline load factor of 80.0 percent in the third quarter of 2003, a 4.3 point increase over the same period in 2002. In July, the company set a monthly all-time record mainline load factor of 84.5 percent, 5.0 points above July 2002 and 3.5 points above the previous record set in June 2003. On Aug. 2, 2003, Continental set a record daily load factor of 90.9 percent, the highest daily load factor in its history, while achieving a 99.9 percent completion factor and an on-time arrival rate of 86.8 percent.
Revenue passenger miles for Continental`s regional operations were up 54.8 percent on a capacity increase of 41.9 percent during the third quarter of 2003. The airline`s regional load factor in the third quarter of 2003 was 70.8 percent, a quarterly record, and a 5.9 point increase over the same period in 2002.
Continental recorded an increase in mainline passenger revenue per available seat mile (RASM) of 4.8 percent in the third quarter of 2003 over the same period last year, despite extremely weak performance in Micronesia where RASM declined 14.4 percent. Continental maintained a domestic length- of-haul adjusted yield and RASM premium to the industry.
During the quarter, Continental recorded a U.S. Department of Transportation (DOT) on-time arrival rate of 79.5 percent and a completion factor of 99.2 percent, operating 26 days without a single flight cancellation. The airline`s operational results in September were severely impacted by a month-long runway resurfacing project at its New York hub at Newark Liberty International Airport, which was completed Sept. 27. In addition, the blackout in the Northeast and hurricanes Claudette and Isabel also impacted the quarter`s operational results.
While the blackout in the Northeast impacted Continental`s operational performance in the quarter, the airline was the first to restore its flight schedule, canceling only 45 flights on Aug. 14 and 15, for a completion factor of 98.3 percent.
“In spite of the runway resurfacing project at Liberty and the Northeast blackout, our team has done a great job of keeping operations on track,” said Larry Kellner, Continental`s president and chief operating officer. “We will be a long-term survivor thanks to the dedicated efforts of our employees.”
To further differentiate Continental`s service and give added value to its best customers, Continental launched a package of special services and benefits for premium flyers including EliteAccess, Elite for the Day, and No Middle Seat Guarantee. These services include “head of the line” boarding at any time during the boarding process, first-to-the-carousel baggage delivery, space available first-class upgrades and guaranteed window or aisle seating.
Sales at continental.com continued on a record pace, increasing 86 percent in the third quarter 2003 over the same period last year. Online sales, including third party sites, accounted for 30 percent of the total segments flown in the third quarter.
Continental further expanded its codeshare agreement with KLM in the third quarter, giving customers access to 69 KLM destinations in Africa, the Middle East and Europe. In addition, the company began codeshare service with Emirates on flights between Dubai and the U.S. via London/Gatwick airport. These codeshare agreements also allow travelers to enjoy reciprocal airport lounge and frequent flyer benefits.
Continental`s premium class service once again outranked all other U.S. airlines surveyed for comfort and value in Conde Nast Traveler`s recently announced 2003 Business Traveler Awards. The airline`s BusinessFirst service has outranked all other U.S. airlines surveyed for each of the six years that Conde Nast Traveler readers have completed the survey.
The airline completed installation of Verizon Airfone JetConnect with Email, becoming the first U.S. airline to offer two-way e-mail, instant messaging and text messaging on its entire domestic fleet.
Third Quarter Financial Results -
Continental`s mainline cost per available seat mile (CASM) rose slightly in the third quarter, increasing 1.2 percent (0.4 percent decrease holding fuel rate constant) on 2.3 percent fewer ASMs relative to the same period last year.
“Our continuing efforts to align our schedule, fleet and cost structure with today`s weak revenue environment are beginning to produce results,” said Jeff Misner, Continental`s senior vice president and chief financial officer. “Our entire team remains focused on restoring consistent profitability.”
During the quarter, Continental completed the disposition of 17 million shares of common stock of ExpressJet Holdings, Inc. (NYSE: XJT). It contributed $127 million in cash proceeds and an additional $100 million of ExpressJet shares to Continental`s defined benefit pension plan. The total gain from these dispositions was $173 million ($100 million after taxes).
These transactions reduced Continental`s percentage ownership of ExpressJet to approximately 31 percent. Due to new accounting rules (FASB Interpretation No. 46, “Consolidation of Variable Interest Entities”), the company will continue to consolidate the financial results of ExpressJet until the combined interest held by the pension plan and Continental, which was 44 percent on Sept. 30, 2003, falls below 41 percent. Continental contributed an additional $103 million in cash to its defined benefit pension plan in the third quarter, bringing its year-to-date pension contributions to $372 million. The contributions exceed the airline`s minimum pension obligation for 2003 by $283 million, bringing the plan funding to approximately 90 percent of the company`s current liability at year-end 2002.
During the quarter, ExpressJet Holdings accepted delivery of six ERJ-145XR aircraft, bringing Continental`s regional operator`s total operating fleet to 218 jets.
Continental ended the third quarter with more than $1.6 billion in cash and short-term investments, of which $139 million is restricted and $171 million is held by ExpressJet.
Continental Airlines is the world`s seventh-largest airline and has more than 2,200 daily departures. With 127 domestic and 96 international destinations, Continental has extensive service throughout the Americas, Europe and Asia. Continental has hubs serving New York, Houston, Cleveland and Guam, and carries approximately 41 million passengers per year. With 42,000 mainline employees, Continental is one of the 100 Best Companies to Work For in America. In 2003, Fortune ranked Continental highest among major U.S. carriers in the quality of its service and products, and No. 2 on its list of Most Admired Global Airlines. 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 11:30 a.m. CT/12:30 p.m. ET. To listen to a live broadcast of this briefing, go to continental.com/company .
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 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 2002 10-K and its other securities filings, which identify important matters such as terrorist attacks, domestic and international economic conditions, the significant cost of aircraft fuel, labor costs, competition and industry conditions including the demand for air travel, airline pricing environment and industry capacity decisions, regulatory matters and the seasonal nature of the airline business. In addition to the foregoing risks, there can be no assurance that the Company will be able to achieve the pre-tax benefits from the revenue-generating and cost-reducing initiatives discussed in this press release, some of which will depend, among other matters, on customer acceptance and competitor actions. We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this report.