This summary is based on the third quarter fiscal 2008 earnings call conducted by Continental Airlines, Inc. (CAL) on October 16, 2008.
Management:
Senior Vice President - Worldwide Corporate Communications: Ned Walker
Director of Investor Relations: DeAnne Gabel
Chairman of the Board, Chief Executive Officer: Lawrence W. Kellner
President, Director: Jeffery A. Smisek
Chief Financial Officer, Executive Vice President: Zane Rowe
Executive Vice President of Operations: Mark Moran
Executive Vice President of Marketing: Jim Compton
Senior Vice President Finance & Treasurer: Jerry Laderman
Key Investors Issues
- EPS were a loss of $2.14 a share compared to a profit of $2.15 a share last year.
- Profit loss was $236 million reversing the year-earlier period\''s profit of $241 million.
- Revenue reached $4.16 billion from $3.82 billion a year ago.
Third Quarter Highlights
Continental reported a net loss of $145 million or a loss of $1.32 per share excluding $91 million of previously announced special items.
Including those special items, the company reported a net loss of $236 million or a loss of $2.14 per share for the third quarter.
- The company filed an application with the Department of Transportation to join these carriers in an antitrust immunized alliance and is in the process of finalizing response to the DOT’s request for additional information.
- The estimated impact of Hurricane Ike on operating results was approximately $50 million.
- The company had a domestic mainline year-over-year yield increase of 9.4%. It traded some load factor for those higher yields but the trade off was worth wild as domestic mainline RASM was up 6.8% year-over-year. Trans Atlantic RASM was up 6% driven by a year-over-year increase in yields of 7.8% as load factor was down.
- The positive foreign exchange impact on Trans Atlantic RASM was about two and a half points. Pacific region includes Trans Pacific routes as well as Continental Micronesia operations. Overall, Pacific yields were up 9.3% on 7.4% less capacity. Loads were down about half a point resulting in a RASM increase of 8.6% year-over-year. Latin region continued to do well.
- The mainline Latin yields were up 13.3% and RASM was up 14.9% as load factor increased about a point. The company saw improvement in regional yields. Regional load factor was down 5.2 points year-over-year on 6.2% more capacity so regionally RASM was just up year-over-year.
Revenue performance was encouraging given the slowing economy but unfortunately it was not in the company to offset cost increases driven by the rising cost of fuel which was up $736 million on a consolidated basis.
- Crude oil peaked at a record high close of $145 per barrel helping drive a nearly 75% year-over-year increase in r price per gallon of fuel.
- Companywide everyone did a good job controlling non-fuel related costs. Mainline CASM holding fuel rate constant and excluding special items was down 2.8% year-over-year.
Improvement in unit cost performance excluding special items and holding fuel rates constant will become more difficult as the company removes capacity from the system.
On fuel, in recent weeks the company has seen crude oil prices come down.
- Oil remains a volatile commodity and as recently as three months ago was trading at records highs. The company has hedged approximately 22% of fourth quarter volumes using call options and crude oils.
- Additionally, the company has hedged approximately 34% using a combination of collars in crude oil and heating oil. It has hedged approximately 18% for the full year 2009. The company is retiring many of least fuel efficient mainline aircraft and has installed winglets on over 250 of mainline aircraft. Regarding fleet, the company has rescheduled in to 2010 the two 777s that were originally scheduled for delivery in 2009.
- The company has an agreement in principal with Boeing to reschedule in to 2011 and beyond a total of 16 narrow body aircraft originally scheduled for delivery in 2009 and 2010. In addition, the company may lease up to four additional 757 300 aircraft.
- The company ended the third quarter with approximately $2.9 billion of unrestricted cash and short term investments which includes $125 million of student loan related option rate securities that are now classified as short term investments. This balance excludes $130 million of auction rate securities that remain classified as long term investments. The company expects to end the year with approximately $2.5 billion of unrestricted cash excluding auction rate securities that are classified as long term investments.
Fourth Quarter 2008 Outlook
- The company expects mainline capacity to be down 7.8% compared with the fourth quarter of 2007 with mainline domestic capacity down 11% and mainline international capacity down 4.3%. The company expects regional capacity will be down 1.5%.
- The company expects consolidated CASM excluding special items and holding fuel rate constant to be up about 3.5% year-over-year and mainline CASM again, holding fuel rate constant and excluding special items to be up about 4% year-over-year.
Fiscal 2007 Outlook
- Excluding special items and holding fuel rates constant the company expects consolidated CASM to be down about .5% and mainline CASM to be down about 1%.
- The company expects consolidated capacity that is mainline plus regional will be down.
- For 2009 the company expects total mainline capacity will be down 1% to 3% year-over-year with mainline domestic capacity expected to be down 4% to 6%.
- The company expects cash capital expenditures to be $425 million net of aircraft purchase deposits paid or refunded.
Key questions from the third quarter earnings call conducted by Continental Airlines, Inc. on October 16, 2008.
