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Continental expected to report loss Thursday
Posted by [URL="http://blog.cleveland.com/business/about.html"][EMAIL="[email protected]"]Alison Grant[/EMAIL][/URL] July 16, 2008 11:45AM
Categories: Aviation, Breaking News
Continental Airlines is expected Thursday to join a raft of domestic carriers reporting a slump in earnings as oil prices continue to wreck the industry's business model.
Analysts, on average, say Continental's second quarter report will show a loss of $55 million, or 52 cents a share, according to a survey by Thompson Financial. The analysts expect a full-year loss for the nation's No. 4 carrier of $541 million, or $4.92 per share.
But the Houston-based airline, with other hubs in Cleveland, Newark and Guam, is faring better than most of its competitors.
Delta Air Lines on Wednesday reported second-quarter losses bigger than Continental's forecasted drop for the year. No. 3 Delta lost $1 billion from April through June, or $2.64 per diluted share.
Excluding special charges, though, Delta said it earned $137 million, or 35 cents a share. Delta has agreed to buy Northwest Airlines; it expects the deal to close in the fourth quarter.
Results for No. 1 American Airlines, also out Wednesday, showed a net loss of $1.4 billion for the quarter, or $5.77 a share. Excluding special charges, losses were $248 million, or $1.13 per share.
"The cost of fuel has run up so high it's likely to be damaging to everyone," said Philip Baggaley, a managing director at Standard & Poor's who analyzes airlines.
But the earnings reports were better than expected, and shares of the two carriers rose sharply in trading. American parent company AMR Corp. rose $1.41, or 32 percent, to $5.82. Delta was up $1.24, or 27 percent, to $5.91. Continental jumped $2.54, a 38 percent rise, to $9.19.
Henry Harteveldt, a Forrester Research Inc. analyst in San Francisco, attributed the increases to a tapering of oil prices in recent days, down to $134 a barrel; carriers emerging with lots of unrestricted cash that will help them weather the fuel crisis; and Delta's expectation that it will wring significant savings from its Northwest acquisition.
Airlines are cutting costs every way conceivable to deal with soaring oil prices. Jet fuel is the wild card, so airlines are left to tackle expenses by reducing capacity -- which should help them increase ticket prices -- and reducing manpower. Just Wednesday, American told Ohio officials that it intends to lay off 55 ground workers in Columbus after the summer travel season.
Airlines that have cash on hand will be best equipped to cope with the doubling in the price of fuel from a year ago, Harteveldt said. That's a key thing to watch when Continental releases its earnings Thursday -- unencumbered cash or assets that can be sold.
Continental earlier announced that it expects to end the second quarter with about $3 billion in cash.
AMR ended the quarter with $5.5 billion in cash and short-term investments. Delta had $4.3 billion in unrestricted liquidity.
"The healthier the balance sheet, the higher the likelihood that the airline not only can continue to operate, but can take advantage of smart business moves like hedging fuel costs," Harteveldt said.
Continental already is liquidating assets. It sold its remaining stake in the Panamanian carrier Copa Holdings SA during the second quarter. The airline also said it would recognize gains of $33 million related to fuel hedging.
Continental said last week that it would take a charge of $58 million during the second quarter, mostly related to the decreased value of its Boeing 737-300s and 737-500s. Continental is taking those fuel-thirsty planes out of service to reduce capacity. The airline also expects a $29 million write-down on a drop in the value of student loan-related securities it holds.
But overall, the company said it will post a net gain of $22 million from special items in the second quarter because of a tax credit and the COPA sale.
Continental is one of the early reporters in a run of airline earnings released over the next two weeks. All major airlines are expected to show red ink except Southwest Airlines, the low-cost carrier that broke the mold with its no-frills service beginning in the late 1960s.
"The outlook is pretty dismal, and we currently have all 10 of the [major] U.S. airlines that we rate on our credit watch list for review and possible downgrading," Baggaley said.
Still, among a group of patients, Continental is about the least sick, said FTN Midwest Securities Corp.'s Michael Derchin.
It has a balanced network of roughly half international routes, he said. Even with oil topping $140 a barrel, airlines can make a little money on trans-Atlantic flights.
Continental also is unique among carriers because its New York market hub, in Newark, N.J., has a bustling domestic business and is a strong launch pad for international flights. Nearby John F. Kennedy International Airport and La Guardia Airport are mostly used as origination or connecting airports for flights abroad,
Posted by [URL="http://blog.cleveland.com/business/about.html"][EMAIL="[email protected]"]Alison Grant[/EMAIL][/URL] July 16, 2008 11:45AM
Categories: Aviation, Breaking News
Continental Airlines is expected Thursday to join a raft of domestic carriers reporting a slump in earnings as oil prices continue to wreck the industry's business model.
Analysts, on average, say Continental's second quarter report will show a loss of $55 million, or 52 cents a share, according to a survey by Thompson Financial. The analysts expect a full-year loss for the nation's No. 4 carrier of $541 million, or $4.92 per share.
But the Houston-based airline, with other hubs in Cleveland, Newark and Guam, is faring better than most of its competitors.
Delta Air Lines on Wednesday reported second-quarter losses bigger than Continental's forecasted drop for the year. No. 3 Delta lost $1 billion from April through June, or $2.64 per diluted share.
Excluding special charges, though, Delta said it earned $137 million, or 35 cents a share. Delta has agreed to buy Northwest Airlines; it expects the deal to close in the fourth quarter.
Results for No. 1 American Airlines, also out Wednesday, showed a net loss of $1.4 billion for the quarter, or $5.77 a share. Excluding special charges, losses were $248 million, or $1.13 per share.
"The cost of fuel has run up so high it's likely to be damaging to everyone," said Philip Baggaley, a managing director at Standard & Poor's who analyzes airlines.
But the earnings reports were better than expected, and shares of the two carriers rose sharply in trading. American parent company AMR Corp. rose $1.41, or 32 percent, to $5.82. Delta was up $1.24, or 27 percent, to $5.91. Continental jumped $2.54, a 38 percent rise, to $9.19.
Henry Harteveldt, a Forrester Research Inc. analyst in San Francisco, attributed the increases to a tapering of oil prices in recent days, down to $134 a barrel; carriers emerging with lots of unrestricted cash that will help them weather the fuel crisis; and Delta's expectation that it will wring significant savings from its Northwest acquisition.
Airlines are cutting costs every way conceivable to deal with soaring oil prices. Jet fuel is the wild card, so airlines are left to tackle expenses by reducing capacity -- which should help them increase ticket prices -- and reducing manpower. Just Wednesday, American told Ohio officials that it intends to lay off 55 ground workers in Columbus after the summer travel season.
Airlines that have cash on hand will be best equipped to cope with the doubling in the price of fuel from a year ago, Harteveldt said. That's a key thing to watch when Continental releases its earnings Thursday -- unencumbered cash or assets that can be sold.
Continental earlier announced that it expects to end the second quarter with about $3 billion in cash.
AMR ended the quarter with $5.5 billion in cash and short-term investments. Delta had $4.3 billion in unrestricted liquidity.
"The healthier the balance sheet, the higher the likelihood that the airline not only can continue to operate, but can take advantage of smart business moves like hedging fuel costs," Harteveldt said.
Continental already is liquidating assets. It sold its remaining stake in the Panamanian carrier Copa Holdings SA during the second quarter. The airline also said it would recognize gains of $33 million related to fuel hedging.
Continental said last week that it would take a charge of $58 million during the second quarter, mostly related to the decreased value of its Boeing 737-300s and 737-500s. Continental is taking those fuel-thirsty planes out of service to reduce capacity. The airline also expects a $29 million write-down on a drop in the value of student loan-related securities it holds.
But overall, the company said it will post a net gain of $22 million from special items in the second quarter because of a tax credit and the COPA sale.
Continental is one of the early reporters in a run of airline earnings released over the next two weeks. All major airlines are expected to show red ink except Southwest Airlines, the low-cost carrier that broke the mold with its no-frills service beginning in the late 1960s.
"The outlook is pretty dismal, and we currently have all 10 of the [major] U.S. airlines that we rate on our credit watch list for review and possible downgrading," Baggaley said.
Still, among a group of patients, Continental is about the least sick, said FTN Midwest Securities Corp.'s Michael Derchin.
It has a balanced network of roughly half international routes, he said. Even with oil topping $140 a barrel, airlines can make a little money on trans-Atlantic flights.
Continental also is unique among carriers because its New York market hub, in Newark, N.J., has a bustling domestic business and is a strong launch pad for international flights. Nearby John F. Kennedy International Airport and La Guardia Airport are mostly used as origination or connecting airports for flights abroad,
