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Earnings Preview: Continental to post 4Q loss

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Continental Airlines Inc. is scheduled to report fourth-quarter results Thursday. Here’s a summary of key developments in the period.

OVERVIEW: So many passengers, so little revenue. That’s why analysts believe that Houston-based Continental lost about $225 million last quarter.

Traffic on Continental rose about 3.5 percent during the last three months of 2009 compared with a year earlier. But revenue per seat, a key performance measure in the airline industry, fell because lucrative business travel dropped off and the airline had to cut prices to fill seats with vacationers.

Still, the trend was improving, as the revenue measurement got better, month by month. By December, Continental estimated, passenger revenue per mile flown by each seat declined about 4 percent, compared with a drop of about 15.5 percent in October.

Airlines struggled to raise fares in 2009, so they turned to fees. That practice is continuing in 2010, with Continental among the first carriers this month to raise fees for checked baggage.

BY THE NUMBERS: Continental, like American and Delta, lost money in each of the first three quarters of 2009, and analysts think the streak will continue.

As of Tuesday afternoon, analysts surveyed by Thomson Reuters expected Continental to report a loss of 8 cents per share for the quarter that ended Dec. 31. Analysts exclude one-time gains and charges, so the net loss using standard accounting rules could be different.

Continental said this week that it expects to record $77 million in charges for the fourth quarter, including write-downs of routes and aircraft, and a pilots’ pension plan settlement.

In the fourth quarter of 2008, Continental lost $266 million, or $2.33 per share under standard accounting rules. Excluding items, the company said the year-ago loss would have been $96 million, or 84 cents per share.

Analysts expect Continental to say that fourth-quarter revenue was $3.19 billion, down from $3.47 billion a year ago.

ANALYST TAKE: Kevin Crissey of UBS Securities said Continental ended the quarter with December results that were better than expected. He said airline revenue was improving.

“We forecast strong (revenue) trends in 2010 and favor legacy airline stocks that have international and corporate travel exposure,” Crissey wrote in a recent note to clients.

But Crissey warned that any revenue gains could be wiped out by higher fuel costs. Jet fuel prices have doubled since March 2009.

WHAT’S AHEAD: One of the first actions taken by CEO Jeff Smisek, who took over Jan. 1 after Larry Kellner quit to run a private equity firm, was to announce he would forgo his $730,000 salary until the company makes a full-year profit.

Analysts don’t expect Smisek to starve: They predict the company will break into the black this year.

Smisek said he didn’t ask other employees to give up their pay. The company is negotiating wages and benefits with its pilots, flight attendants and mechanics.

Smisek also must navigate through challenges created by greater competition from low-cost carriers such as Southwest, JetBlue and AirTran.

And he might reconsider Kellner’s decision in 2008 to abandon merger talks with United Airlines. Smisek has said he would rather remain independent but can’t rule out a merger.

STOCK PERFORMANCE: Continental shares gained 9 percent in the fourth quarter, rising from $16.44 to $17.92. That’s less than the 17.4 percent increase in the Amex index of 13 U.S. and foreign airlines over the same period.

In trading Tuesday afternoon, Continental shares closed down 10 cents, at $20.43, not far from their 52-week high of $21.33.

© 2010 Associated Press. Displayed by permission. All rights reserved.

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