4th Qtr Profit

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Aug 20, 2002
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:rolleyes: Continental posts profit with one-time gains

CHICAGO, Jan 20 (Reuters) - Continental Airlines Inc. on Tuesday reported a fourth-quarter profit, largely on gains from the sale of its stakes in two online reservation companies, and said high fuel prices would make it tough to break even this year.

The No. 5 U.S. airline, the second major airline to report results for the last three months of 2003, said its profit amounted to $47 million, or 67 cents per share, compared with a net loss of $109 million, or $1.67 per share, a year earlier.

Continental's results include an $85 million gain, primarily driven by the sale of its interests in online travel companies Hotwire, which was acquired by InterActiveCorp last year, and Orbitz Inc. , which went public last month.

Excluding those special items, the Houston-based carrier posted a loss of 58 cents a share for the quarter. On that basis, analysts had expected Continental to post a loss of 84 cents a share, with loss estimates ranging from 47 cents to $1.15, according to Reuters Research, a unit of Reuters Group Plc.

Chief Executive Gordon Bethune said the company's cost-cutting efforts have helped prepare it for a tough revenue environment in 2004.

"However, it's going to be a struggle to break even this year with persistently high fuel prices," he said in a statement.

Bethune, who last week announced he would retire earlier than planned at the end of this year, said in December that Continental was working to break even in 2004 as the industry tries to dig itself out of a huge financial hole.

U.S. airlines have been struggling to slash costs and revamp their strategies after an extended downturn which analysts say has permanently changed the way airlines do business. A slump in demand for business travel has left carriers lacking sufficient revenue to cover their high costs.

Delta Air Lines last week posted a narrower fourth-quarter loss but said it needs to cut costs further and forecast another big loss in the first quarter.

Continental said passenger revenue for the quarter was $2.1 billion, up 8.4 percent from a year earlier. But mainline yields, or average fares, stayed weak, down 2.1 percent year-over-year.

Mainline unit revenue, or revenue per available seat mile, rose 3.8 percent in the fourth quarter versus a year earlier, while mainline unit costs increased 2.6 percent during the same period, the airline said.

Continental said it ended the fourth quarter with $1.6 billion in cash and short-term investments, of which $170 million is restricted.

Shares of Continental slipped nearly 2 percent in the fourth quarter but more than doubled in 2003. They closed at $17.45, up 45 cents, on the New York Stock Exchange on Friday.


01/20/04 08:56 ET

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I think CAL will do pretty good this year...and by the way has anyone noticed how packed Concourse C in CLE has been lately...whats up?
 
I just moved from CLE (to Dallas) so I can look at CO a bit more impartially from here maybe. I dunno ... since Brenneman left, I have seen no innovation from CO, just a "sit tight and hope the economy improves" strategy. The only changes have been retrograde (changes to FF program, the ridiculous Elite Access veneer).

While CO may be some way from facing the troubles that US Airways is in, they shouldn't think it can't happen to them. JetBlue will eventually start impact CO's NY yields, and SW continues to expand across the country (PHL can draw some EWR traffic). No changes have been made to the pricing model, the distribution model, the onboard product, the airport experience (EA aside -- barf; CLE Concourse C security is still awful, and CO has to take responsibility to work it with the TSA), or in the operations. The labor cost advantge compared to the other majors has now gone. Heck, I see UA leading the pack in terms of aggressive marketing, AA at least attempting to increase operating productivity, the LCC's and even Ted simplifying the fare structure and getting better yields. The CO onboard product is decent, but there's no consistent marketing behind it, and it looks clean but dull compared to JB. If you weren't a CO FF, would you know that your chances of a meal in Y were far better on CO or XJT than on any other carrier? Look at how JB hammers home at every occassion what their product is (leather seats, TV, 34"+ leg room). Whether it's UA and Eplus, CO and food, or AA and MRTC, all the lagacy carriers do a really poor job communicating to business and leisure travellers (especially people who may do a lot of flying but on other carriers) what the heck it is that differentiates their product.

US may be the one in deep trouble, but CO needs to change its business model just as UA, AA, and DL do.

SVQLBA

PS. The US is badly "overhubbed" (i.e., airlines are sucking people in many markets thru hubs, when there's enough OD demand to serve them direct -- that's why JB and SW are licking their lips at the expansion opportunities) and while CLE may be recovering just now, long-term I cannot see it surving as a hub in the US industry. Not with the NE Ohio economy so anemic.
 
I'm still unsure as to whether or not the latest round of CO changes are bad for the company. Sure, they are driving away a subset of customers, and that could potentially mean lost profits.

However, if their moves result in a "richer" mix of fares than in the past, the RASM goes up even if the number of cheeks in the seats remains the same. It might even go up with a decrease in the number of cheeks.

I'd be curious to see what the fare breakdown is on their flights, because if I'm reading their intentions correctly, they're going to need to increase the number of FC seats to maintain a very rich mix.

One question that is especially hard to answer is how sustainable such a business model is. It appears to me like the sustainability can be measured in years, but not more than 5, tops. Basically, this business model is going to collide head-on with LCCs at some point. I wonder if they've started to think about what they'll do then.
 

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