Continental Airlines Reports Q2 2010 Profit

Continental Airlines has reported a second quarter 2010 net income of $233 million ($1.46 diluted earnings per share). Excluding $24 million of merger-related costs and other special charges, Continental recorded second quarter net income of $257 million ($1.60 diluted earnings per share).

Operating income for the second quarter of 2010 was $328 million, up $482 million compared to the same period of 2009.

Total revenue for the second quarter of 2010 was $3.7 billion, an increase of 18.6% compared to the same period in 2009. Passenger revenue for the second quarter rose 19.7% ($544 million) compared to the same period in 2009.

Consolidated revenue passenger miles (RPMs) for the second quarter of 2010 increased 2% while capacity (available seat miles, ASMs) remained flat year-over-year, resulting in a record second quarter consolidated load factor of 84.6%.

Consolidated yield for the quarter increased 17.3% year-over-year. Combined with the 1.9 point year-over-year increase in consolidated load factor, second quarter 2010 consolidated passenger revenue per available seat mile (RASM) increased 19.9%.

Continental’s mainline yield increased 16.3% in the second quarter over the same period in 2009. Mainline load factor of 85% was also a second quarter record, up 1.8 points year-over-year. Second quarter 2010 mainline RASM increased 18.8% year-over-year. Mainline RPMs in the second quarter of 2010 increased 1.5% on a mainline capacity decrease of 0.7% year-over-year.

Cargo revenue in the second quarter of 2010 increased 35.4% ($29 million) compared to the same period in 2009, principally due to increased freight volume.

Continental’s employees earned a total of $6 million in cash incentives for on-time performance during the quarter. The company recorded a DOT on-time arrival rate of 83.1% and a system wide mainline segment completion factor of 99.3% during the quarter, despite record load factors and flight disruptions due to the volcanic ash plume that closed European airspace for several days during the quarter.

Second Quarter Costs and End of Quarter Cash

Continental’s mainline cost per available seat mile (CASM) increased 3.9% in the second quarter 2010 compared to the same period last year. Mainline fuel prices for the second quarter increased 8.7% compared to the second quarter of 2009, while mainline fuel consumption declined 1.1% year-over-year on 0.7% less mainline capacity. Holding fuel rate constant and excluding special charges and merger-related costs, second quarter 2010 mainline CASM increased 2.2% compared to the second quarter of 2009.

“These results represent another quarter of strong operational performance and cost control by the entire Continental team,” said Zane Rowe, Continental’s executive vice president and chief financial officer. “While there is still a lot of work ahead in order to sustain profitability, we are pleased with this quarter’s results.”

Through June 30, 2010, the company has accrued $18 million under its current year profit sharing plan. The actual amount of profit sharing that the company will distribute to eligible employees in February 2011 depends on the company’s full year financial results.

During the second quarter of 2010, Continental contributed $40 million to its defined benefit pension plans. The company contributed an additional $38 million to its defined benefit plans earlier this month, bringing its total year-to-date contributions to $112 million.

In the second quarter of 2010, Continental recorded $18 million of merger-related costs, relating to financial advisor, legal, accounting and consultant fees and communication costs. The company also had $6 million of special charges in the second quarter of 2010, primarily related to a change in the company’s reserve for unused space at its maintenance facility in Denver.

Continental ended the second quarter with $3.5 billion in unrestricted cash, cash equivalents and short-term investments.

Merger with United

In May, Continental and United announced their plans to merge. The merger is expected to deliver $1 to $1.2 billion in net annual synergies by 2013, including between $800 million and $900 million of incremental annual revenues, in large part from expanded customer options resulting from the greater scope and scale of the network, and additional international service enabled by the broader network of the combined carrier. The companies remain on track to close the merger in the fourth quarter of 2010.

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