Continental Airlines posts $233 million 2Q profit, reversing loss of a year ago

Thursday, July 22, 2010

Continental posts 2Q profit on big jump in revenue

DALLAS — A crush of summer-vacation travelers helped Continental Airlines Inc. post its biggest quarterly profit in nearly three years — more evidence of a strong recovery in the airline business.

Continental packed its planes and earned more money from the average passenger. That offset a continuing slump in business travel, which hasn’t yet returned to the levels before the recession.

Continental, which plans to merge with United’s UAL Corp. to form the world’s biggest airline, said Thursday it earned $233 million in the second quarter. That’s nearly an exact reversal of its $213 million loss a year ago, and its per-share earnings beat analysts’ expectations as revenue jumped nearly one-fifth from a year ago.

Also Thursday, JetBlue reported that its profit rose 50 percent, and Alaska Airlines said its earnings doubled from a year ago.

Results from all three confirmed that U.S. airlines are enjoying their best earnings since 2007. Airline stocks rose sharply on Wall Street.

Continental made less money in the second quarter than Delta, United and US Airways, which between them combined to earn $1 billion in the April-through-June period. But Continental’s ratio of profit to revenue was better than Delta’s and United’s.

With the latest earnings season nearly over — Southwest will report results next week — only American Airlines has emerged a loser. American parent AMR Corp. lost $11 million due to higher fuel and labor expenses than its rivals.

Even at the suddenly profitable airlines, there is still plenty of cause for caution.

Continental raised doubts about what will happen once the peak summer travel season ends. It said advanced bookings for the next six weeks are running 1 to 2 percentage points behind last year’s pace.

Continental CEO Jeffery Smisek, who will also lead the combined United and Continental, said lucrative business travel is coming back slowly. However, the airline said the number of business travelers in June was still 20 percent less than 2008, and revenue from those valued customers — who tend to pay higher fares — was down 10 percent.

Smisek said Continental will continue to hold down capacity by refusing to add large numbers of new flights. Such discipline is keeping the supply of seats low and the price of fares high.

Continental’s earnings came to $1.46 per share last quarter. Excluding charges such as money spent preparing for the United merger, the company said it would have earned $1.60 per share. Analysts expected $1.51 per share excluding special items.

A year ago, the company lost $1.72 per share.

Revenue rose 19 percent to $3.71 billion, which matched the forecast of analysts surveyed by Thomson Reuters. Traffic rose just 2 percent, but higher fares and extra fees on things like checked luggage helped Continental make 17 percent more money for each mile that passengers flew.

For July, the airline expects revenue per mile to rise 21 percent.

Continental slightly raised its estimated costs for the second half of the year. Executives said they will pay more in sales commissions, redeem more frequent-flier awards and, now that the company is making money, pay profit sharing to employees, which analyst Jamie Baker of JP Morgan called “a high-grade problem to have.” Baker said the cost creep wasn’t significant.

Standard & Poor’s analyst Jim Corridore said he expects Continental to enjoy strong passenger demand and stable fuel prices. He more than doubled his forecast for Continental profits in 2010 and 2011.

JetBlue Airways Corp. earned $30 million, or 10 cents per share, up from $20 million a year ago. Revenue climbed 16 percent to $939 million. The company raised its forecast of revenue per passenger for the rest of this year.

Alaska Air Group Inc., which operates Alaska Airlines and Horizon Air, said profit doubled to $58.6 million, or $1.60 per share, from $29.1 million a year ago. Revenue rose 16 percent to $976 million.

Continental shares rose 86 cents, or 3.7 percent, to close at $24.14; JetBlue climbed 50 cents, or 8.5 percent, to close at $6.38; and Alaska Air Group gained $1.33, or 2.8 percent, to close at $49.26.

(This version CORRECTS Corrects 10th graf to say Continental business travel has declined compared with 2008, not 2009; updates with closing share prices.)

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