Continental Reports Second Quarter Loss of $3 Million

Continental Airlines reported a second quarter 2008 net loss of $3 million compared to a year earlier profit of $228 million. Excluding $22 million of previously announced net after tax special items, Continental recorded a net loss of $25 million.

The combination of record high fuel prices, weakening economic conditions and a weak dollar has resulted in the worst financial environment for U.S. network carriers since the 9/11 terrorist attacks.

In response to these challenges, Continental implemented a number of initiatives in the second quarter of 2008 to maintain its competitive position in the industry and bolster its cash balance including capacity reductions beginning in September 2008, which Continental expects will result in a 10-percent decline in domestic mainline capacity, a 15.4-percent decline in domestic mainline departures and a 6.7-percent decline in consolidated capacity in the fourth quarter 2008 compared to the same period 2007.

The airline also accelerated the retirement of 67 Boeing 737-300 and 737-500 aircraft, removing a majority of the least fuel efficient aircraft from its mainline fleet by the end of 2009, driving the difficult decision to eliminate approximately 3,000 positions across all work groups. Continental entered into a new seven-year capacity purchase agreement with ExpressJet Airlines, Inc. to provide regional jet service at lower rates, resulting in approximately $50 million of annual savings.

Continental also raised approximately $900 million through a variety of initiatives including an amended credit card marketing agreement, issuance of common stock, sale of Continental’s remaining equity interest in Copa Holdings, S.A. and several secured borrowings.

Consolidated revenue passenger miles (RPMs) for the quarter increased 0.5 percent year-over-year on a capacity increase of 2.7 percent, resulting in a second quarter consolidated load factor of 81.4 percent, 1.8 points below the second quarter record set in 2007.

Consolidated yield for the quarter increased 7 percent year-over-year. Consolidated revenue per available seat mile (RASM) for the quarter increased 4.6 percent year-over-year due to increased yields. Continental’s mainline cost per available seat mile (CASM) increased 15.1 percent (down 4.8 percent holding fuel rate constant and excluding special charges) in the second quarter compared to the same period last year.

During the quarter, Continental recognized a total of $112 million in fuel hedging gains. Of this total, $79 million of realized gains were included as operating expenses when the underlying fuel hedged was used. The remaining $33 million are unrealized gains which relate to fuel hedges for the third quarter of 2008 and beyond which under accounting rules were required to be recognized in the second quarter.