Continental Airlines shares in tailspin

Continental Airlines today warned it would stay in the red in the first quarter amid high fuel prices and competition from discount and traditional airlines, sending shares down more than 10 per cent.

The No. 5 US carrier said its fourth-quarter net loss narrowed to US$43 million ($63 million), or 53 cents a share, from US$208 million, or US$3.16 a share, a year earlier.

But a real turnaround remains elusive despite sacrifices by Continental's unions, most of which have agreed to wage cuts, and a push to boost profitable international flights, the No. 5 US carrier's chief executive warned.

"As we head into 2006 we continue to face low cost carrier competition in our domestic markets, a weak domestic fare environment, high fuel costs, and we expect to report a significant loss in the first quarter of 2006," Larry Kellner said in a conference call.

The cloudy outlook, paired with a surge in crude oil prices to a three-month high, hammered airline industry stocks in general and Continental in particular, which at one point fell more than 12 per cent, its biggest drop in over a year.

"Crude is up today and that contributes, but the undertone of this earnings release are a reminder that maybe in the long term things aren't going to turn great again," said Chris Lozier, an analyst with Morningstar. "It's still a brutal industry to work in."

Continental was the first airline to report in what may be another grim earnings season for US carriers.

Revenue in the quarter rose 16.7 per cent to US$2.8 billion, helped by rising fares and growth in higher margin international routes, with new flights to destinations from Delhi to Buenos Aires.

The earnings were "not bad considering how high fuel prices were in October," said Philip Baggaley, an analyst at Standard & Poor's. "Their revenues were fairly strong." Continental shares were down US$2.04, or 10.5 per cent on the New York Stock Exchange, at US$17.43, underperforming the Amex Airlines index. which was 5.8 per cent lower.

Continental, which last year was one of the industry's top gainers, is down 19 per cent so far this month, compared with a 12 per cent drop in the sector.

Stripping out a one-time gain of US$106 million from the sale of stock in Panamanian airline Copa and special charges of US$21 million, the quarterly loss was US$128 million, or US$1.58 per share, better than Wall Street analysts' forecast of a loss of US$1.85 a share.

In March, most of Continental's unions agreed to accept givebacks, worth a combined US$418 million annually, in a step the Houston-based airline said was key to its survival. Wages, salaries and related expenses fell 11 per cent in the quarter.

Its flight attendants, the sole holdout, reached a tentative deal with Continental in December worth about US$72 million a year. They are set to start voting on Wednesday.

Continental said discounter JetBlue Airways Corp.'s move to start flying from Continental's Newark, New Jersey hub has forced it to cut fares on routes to Florida, boosting demand on those routes, which account for 9 per cent of its available domestic seats.

That in turn has led the airline to boost its outlook for US systemwide seat availability in 2006 to an increase of 3.6 per cent from initially forecast growth of 2.2 per cent, part of an overall 7.6 per cent hike including international flights.

Delta Air Lines, which filed for bankruptcy in September, looms as a competitor to Continental's push to boost international flights, Kellner said. And UAL Corp.'s United Airlines, which expects to emerge from bankruptcy next month, will be another tough rival.

Continental ended the quarter with about US$1.96 billion in cash and short-term investments, with its war chest bolstered by a public offering of its stock and the sale of part of its stake in Copa.

- REUTERS