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Continental posts Q2 net income of $228 million

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Continental posts Q2 net income of $228 million

Old 07-20-2007, 12:20 AM
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Default Continental posts Q2 net income of $228 million

Continued revenue growth leads to highest second quarter pre-tax profit since 2000

HOUSTON, July 19 /PRNewswire-FirstCall/ -- Continental Airlines (NYSE: CAL) today reported second quarter 2007 net income of $228 million ($2.03 diluted earnings per share). Excluding a special charge of $7 million for pilot pension plan settlement charges, Continental recorded net income of $235 million ($2.10 diluted earnings per share), an improvement of 13 percent compared to the same period last year.

Strong international revenue growth, particularly in the trans-Atlantic market, contributed to the best second quarter pre-tax profit ($232 million) that the company has posted since 2000. Continental's second quarter operating income of $263 million increased 7.8 percent compared to the same period last year.

"My co-workers delivered superb operational performance which allowed us to book the highest second quarter pre-tax profit since 2000," said Larry Kellner, Continental's chairman and chief executive officer. "When we work together as a team, we win together."

Through June 30, 2007, the company has accrued $92 million for its current year profit sharing pool, a $32 million increase over the same six-month period last year. The actual amount of profit sharing that the company will be able to distribute to employees in February 2008 depends on the company's full year financial results. Employees have also benefited from stock options issued in connection with pay and benefit cost reductions. At yesterday's closing stock price of $36.83 per share, the realized and unrealized gains from these options was approximately $205 million.

Second Quarter Revenue and Capacity
Passenger revenue of $3.4 billion increased 5.2 percent ($169 million) compared to the second quarter 2006, led by strong international revenue growth.

Consolidated revenue passenger miles (RPMs) for the quarter increased 5.4 percent year-over-year on a capacity increase of 4.7 percent, resulting in a record second quarter consolidated load factor of 83.2 percent, 0.5 points above the previous second quarter record set in 2006. Consolidated passenger revenue per available seat mile (RASM) for the quarter increased 0.5 percent year-over-year as a result of record load factors and increased yield from international flying, partially offset by domestic yield pressure and less regional flying.

Mainline RPMs in the second quarter of 2007 increased 6.9 percent over the second quarter 2006, on a capacity increase of 6.1 percent. Mainline load factor was a record 83.5 percent, up 0.6 points year-over-year. Continental's mainline yield increased 1.5 percent over the same period in 2006. As a result, second quarter 2007 mainline RASM was up 2.2 percent over the second quarter of 2006.

Passenger revenue for the second quarter of 2007 and period-to-period comparisons of related statistics by geographic region for the company's mainline and regional operations are as follows:

Percentage Increase (Decrease) in
Second Quarter 2007
Passenger vs. Second Quarter 2006
Revenue Passenger
(in millions) Revenue RASM ASMs
Domestic $1,517 3.5 % (2.5)% 6.1 %
Trans-Atlantic 689 20.9 % 8.1 % 11.8 %
Latin America 377 9.1 % 8.7 % 0.3 %
Pacific 236 8.8 % 7.8 % 1.0 %
Total Mainline $2,819 8.5 % 2.2 % 6.1 %

Regional $577 (8.4)% (2.7)% (5.8)%

Consolidated $3,396 5.2 % 0.5 % 4.7 %

Operational Accomplishments
Despite severe thunderstorms that impacted operations at its hub cities of Newark, Houston and Cleveland, Continental posted a second quarter systemwide mainline completion factor of 99.4 percent, operating 20 days without a single mainline cancellation.

"Thanks to the hard work of my co-workers, we have again been able to grow our revenue faster than we grew our capacity," said Jeff Smisek, Continental's president. "Customers know that they can depend on Continental, and they prefer flying us."

Continental's employees earned $10 million in cash incentives for the quarter by finishing first in on-time performance among the major network carriers in June, and for finishing in the top three of the major network carriers for monthly on-time performance in April and May.

The company's U.S. Department of Transportation (DOT) on-time arrival rate was 72.2 percent, despite the weather, air traffic control ground delay programs and heavy flight loads.

Continental announced a strategic relationship with China Southern Airlines, the largest airline in China, for frequent flyer and airport lounge access reciprocity beginning in September and extensive codesharing beginning in November.

During the quarter, Continental, in conjunction with Sustainable Travel International, announced plans to offer customers the option to participate in a carbon offsetting program. The voluntary program will allow travelers to calculate the carbon footprint of their booked itinerary and purchase carbon offsets online from non-profit Sustainable Travel International. Proceeds from purchased offsets will be invested by Sustainable Travel International into high-impact sustainable environmental projects, including renewable energy, energy conservation and reforestation.

Continental and US Helicopter Corporation implemented a codeshare agreement to improve service for those connecting between Continental's flights at New York Liberty and US Helicopter's eight-minute shuttle service at heliports located in midtown and downtown Manhattan.

Second Quarter Financial Results
Continental's mainline cost per available seat mile (CASM) increased 0.9 percent (1.4 percent holding fuel rate constant) in the second quarter compared to the same period last year. CASM increased 1.5 percent holding fuel rate constant and excluding special charges.

"We're facing some tough competition so we have to be tireless on the cost side of the ledger," said Jeff Misner, Continental's executive vice president and chief financial officer. "But we'll continue to invest in our people, product and service to maintain the integrity and quality of our operation."

Continental continues to enhance its fuel efficiency. The carrier is about 35 percent more fuel efficient per mainline revenue passenger mile than it was in 1997. With mainline RPMs up 6.9 percent for the second quarter, fuel consumption increased only 5.3 percent.

Continental hedged approximately 40 percent of its expected fuel requirements for the second quarter of 2007. As of July 17, 2007, the company had hedged approximately 34 percent of its projected fuel requirements for the third quarter of 2007, and 13 percent for the fourth quarter of 2007.

Work continued in the second quarter on the company's project to install winglets on 37 of the company's 737-500s and 11 long-range 737-300s. Continental expects to have winglets installed on more than 200 mainline aircraft by the end of the year. Winglets increase aerodynamic efficiency and decrease drag, reducing fuel consumption and emissions by up to five percent.

Continental ended the second quarter with $3.18 billion in unrestricted cash and short-term investments.

Other Accomplishments
Continental contributed $30 million to its pension plans during the quarter. The company contributed an additional $75 million to its plans in July, bringing its year-to-date pension contributions to $211 million, which significantly exceeds minimum funding requirements for those periods. Continental currently expects to contribute more than $325 million to its plans in 2007, significantly exceeding its minimum funding requirements of $187 million for the calendar year.

During the quarter, Continental took delivery of its 20th and final Boeing 777 aircraft, the last Boeing aircraft delivery scheduled in 2007. The company also announced adjustments to its flexible fleet plan as part of its continuing efforts to emphasize fuel efficiency, environmental benefits and fleet optimization. Continental ordered four additional 737NG aircraft from The Boeing Company for delivery in 2010 and moved six 737NG aircraft scheduled for delivery in 2009 to 2010. The company now has a total of 64 Boeing 737s and 25 Boeing 787s on firm order, with options for another 92 Boeing aircraft.

In July, Continental signed an agreement for the sale of 10 Boeing 737-500 aircraft to Russian-based TRANSAERO Airlines. The aircraft are scheduled to be removed from the fleet from October 2007 through November 2008. Continental is in discussions with another foreign entity regarding the sale of an additional five Boeing 737-500 aircraft for delivery during the same time period. In addition, Continental moved forward to 2008, three 737-900ER aircraft originally scheduled for delivery in 2009.

As a result of these sales and movements, Continental expects its mainline capacity to increase between 3 and 4 percent in 2008, down from its earlier target of between 5 and 7 percent.

In April, Continental completed interline eTicket capability with all of its alliance partners, including all current and planned members of SkyTeam and planned SkyTeam associates, and all other codeshare and frequent flyer partners. Continental expects to eliminate paper tickets entirely by the end of 2007. Continental is the global industry leader in interline eTicket implementation, currently having interline eTicket capabilities with 80 carriers.
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