News Release
Continental Airlines Reports 17th Consecutive Profitable Quarter
HOUSTON, July 19, 1999 -- Continental Airlines (NYSE: CAL and CAL.A) today reported its 17th consecutive profitable quarter with second quarter net income of $137 million ($1.93 basic and $1.80 diluted earnings per share). This exceeds First Call's consensus estimate of $1.73 diluted earnings per share. Continental reported net income of $221 million for the first six months of 1999 ($3.17 basic and $2.91 diluted earnings per share). Continental ended the quarter with $1.3 billion in cash and short-term investments.
"We've achieved another quarter of rock solid financial and operational performance," said Gordon Bethune, Continental Airlines' chairman and chief executive officer. "Our team continues to out-perform the industry year after year."
Second Quarter Operating Results
Second quarter passenger revenue rose 7.4 percent to $2 billion. Continental continued to grow profitably as the airline more than filled new capacity, as evidenced by a 9.1 percent increase in revenue passenger miles on a capacity increase of 8.6 percent.
Continental continues to enjoy yield, load factor and domestic length-of-haul adjusted revenue per available seat mile (RASM) premiums to the industry.
The airline reported that its Domestic, Latin America and Micronesia operations continue to record year-over-year increases in RASM due to revenue changes that exceed capacity changes. In addition, the new transpacific service to Tokyo and the new routes to Brussels and Zurich are performing better than forecast. Detailed statistics by geographic region are shown below:
Second Quarter 1999 vs. Second Quarter 1998
| Passenger Revenue | RASM | |
|---|---|---|
| Domestic | 5.0% | 0.2% |
| Europe | 10.4% | (9.2%) |
| Latin America | 9.2% | 1.8% |
| Micronesia | (19.4%) | 10.2% |
| Transpacific | N/A | N/A |
Over each of the last nine quarters, Continental Express' traffic growth exceeded capacity increases (on a quarter-over-quarter basis) by a strong margin. In the second quarter, Continental Express' capacity increased 26.5 percent while traffic jumped 33.7 percent, resulting in a load factor increase of 3.5 percentage points.
Continental's cost per available seat mile (CASM) increased slightly. The 1.4 percent increase in CASM is primarily attributed to the impact of harsh domestic weather and progress in achieving industry standard employee wages, partially offset by a decline in fuel prices.
Continental continues to out-perform the competition in customer service. For 1999, Continental Airlines was ranked No. 1 in customer satisfaction by J. D. Power and Associates. This is the third time in the last four years the airline has won this award.
For the second year in a row, Condé Nast Traveler magazine has named Continental as having the Best Transatlantic Business Class and Best Transpacific Business Class of all U.S. airlines. These and other awards clearly demonstrate Continental's commitment to excellence in customer service. As a result of Continental's ongoing operational success, the airline has paid monthly on-time bonuses to its employees nine out of the last 12 months.
On July 28, 1999, the company will award another eight new Eddie Bauer Ford Explorers to employees for perfect attendance, bringing the total to 55 new cars given away since 1996.
Second Quarter Company Achievements
During the second quarter, Continental launched new international flights between New York/Newark and Brussels, Belgium, as well as Zurich, Switzerland.
Continental began service to Amsterdam, Netherlands on July 15. The 17th transatlantic destination - Tel Aviv, Israel - comes on line Aug. 1, 1999.
With 133 weekly transatlantic flights, Continental offers more nonstop service from New York/Newark across the Atlantic than any other carrier in the history of commercial aviation.
Additionally, Continental launched the first-ever non-stop transatlantic service from its Cleveland hub with daily service to London.
During the quarter, Continental continued to grow its New York/Newark hub - the world's No. 1 business travel market - when it announced its $1 billion Global Gateway Program. Major construction begins next month, and over the next four years Continental will substantially increase its terminal space and add more gates.
"As the hub carrier of New York/Newark, we are excited to be able to begin construction of our new terminal, parking, roadway and rail improvements," said Greg Brenneman, president and chief operating officer. "These improvements will allow us to continue to grow and improve our customer service for many years to come."
Continental continued to strengthen its alliance with Northwest Airlines. The two carriers have now successfully linked the majority of their international and domestic routes.
To date, Continental and Northwest codeshare on approximately 4,000 flights to 261 cities. Currently, approximately 2,000 passengers per day are connecting between Continental/Northwest codeshare flights.
Continental continued to make major investments in its other two underdeveloped hubs - Houston and Cleveland. In May, Continental opened its new $92 million Concourse D at Cleveland Hopkins International Airport. In June, a $58 million TerminaLink people-mover opened in Houston, culminating a 30-month, $240 million expansion at George Bush Intercontinental Airport.
Second Quarter Financial Accomplishments
During the second quarter, the company completed a public offering of $742 million of Enhanced Equipment Trust Certificates to finance 21 new Boeing aircraft at an average interest rate of approximately 7.3 percent. This financing completed Continental's Stage III fleet rejuvenation program, which includes 143 new Boeing aircraft. The financing for the fleet rejuvenation program raised $4.6 billion at an average interest rate of 6.9 percent.
"Over the last three years, we have put in place a capital structure that will benefit Continental for the next 20 years," said Larry Kellner, executive vice president and chief financial officer. "Our savings from our fleet rejuvenation program will exceed $100 million annually."
Continental's fleet rejuvenation program continued in the second quarter with the retirement of 16 older aircraft and the introduction of 11 new Boeing jets into the fleet.
As a result, the New York/Newark hub recently became the airline's first hub to eliminate all older, noisier Stage II aircraft. The last scheduled Stage II aircraft exited New York/Newark on June 30, well ahead of the federally mandated Dec. 31, 1999 deadline for phasing out Stage II aircraft by six months. By year end, Continental will retire 60 jet aircraft - nearly one jet for every new-technology Boeing jet added to the fleet. These retirements, along with new aircraft deliveries, will reduce Continental's average jet fleet age to 7.5 years by the end of the year - the youngest of the major U.S. airlines.
During the quarter, Continental Express continued its conversion to an all jet fleet by taking delivery of seven new regional jets, bringing to 45 the number of regional jets in its fleet. In June 1999, more than 55 percent of Continental Express' available seat miles were flown by regional jets.
On May 25, 1999, the company successfully completed the redemption of all of its outstanding 6 ¾ % convertible subordinated notes, saving $16 million annually in interest expense. These notes converted into 7.6 million shares of class B common stock, further strengthening the company's balance sheet. Prior to the redemption, the shares into which the notes were convertible were included in calculating Continental's earnings per share on a diluted basis.
Continental continued its previously announced $800 million stock repurchase program. To date, the company has repurchased 9.8 million shares of class B common stock for $437 million and expects to complete the current program by the end of the year.
Corporate Background
Continental Airlines is the fifth largest airline in the U.S., offering more than 2,200 departures daily to 130 domestic and 85 international destinations. Operating major hubs in Newark, Houston and Cleveland, Continental (http://www.continental.com) has extensive service throughout the Americas, and to Europe and Asia. Continental ranks high on the list of FORTUNE magazine's "100 Best Companies to Work for in America."
CONTINENTAL AIRLINES, INC. AND SUBSIDIARIES
FINANCIAL SUMMARY
In millions of dollars, except per share data)
(Unaudited)
%
Three Months Ended Three Months Ended Increase/
June 30, 1999 June 30, 1998 (Decrease)
Operating Revenue:
Passenger $2,028 $1,888 7.4 %
Cargo and mail 70 68 2.9 %
Other 100 80 25.0 %
2,198 2,036 8.0 %
Operating Expenses:
Wages, salaries and
related costs 622 521 19.4 %
Aircraft rentals 189 162 16.7 %
Maintenance, materials
and repairs 155 152 2.0 %
Aircraft fuel 154 183 (15.8)%
Commissions 142 152 (6.6)%
Other rentals and landing fees 121 99 22.2 %
Depreciation and amortization 88 72 22.2 %
Other 471 415 13.5 %
1,942 1,756 10.6 %
Operating Income 256 280 (8.6)%
Nonoperating Income (Expense):
Net interest expense (26) (15) 73.3 %
Other, net (4) 10 NM
(30) (5) NM
Income before Income Taxes and
Extraordinary Charge 226 275 (17.8)%
Income Tax Provision (89) (105) (15.2)%
Distributions on
Preferred Securities of Trust,
Net of Tax -- (3) NM
Income before Extraordinary Charge 137 167 (18.0)%
Extraordinary Charge, Net of Tax -- (4) NM
Net Income $137 $163 (16.0)%
%
Six Months Ended Six Months Ended Increase/
June 30, 1999 June 30, 1998 (Decrease)
Operating Revenue:
Passenger $3,928 $3,602 9.1 %
Cargo and mail 137 136 0.7 %
Other 189 152 24.3 %
4,254 3,890 9.4 %
Operating Expenses:
Wages, salaries and
related costs 1,238 1,018 21.6 %
Aircraft rentals 373 318 17.3 %
Maintenance, materials
and repairs 298 305 (2.3)%
Aircraft fuel 304 373 (18.5)%
Commissions 285 293 (2.7)%
Other rentals and landing fees 235 200 17.5 %
Depreciation and amortization 173 140 23.6 %
Other 932 813 14.6 %
3,838 3,460 10.9 %
Operating Income 416 430 (3.3)%
Nonoperating Income (Expense):
Net interest expense (51) (30) 70.0 %
Other, net 9 12 (25.0)%
(42) (18) NM
Income before
Income Taxes, Cumulative
Effect of a Change in
Accounting Principle
and Extraordinary Charge 374 412 (9.2)%
Income Tax Provision (147) (157) (6.4)%
Distributions on
Preferred Securities of Trust,
Net of Tax -- (7) NM
Income before Cumulative Effect of a
Change in Accounting Principle and
Extraordinary Charge 227 248 (8.5)%
Cumulative Effect of a Change in
Accounting Principle, Net of Tax (6) -- NM
Extraordinary Charge, Net of Tax -- (4) NM
Net Income $221 $244 (9.4)%
STATISTICS (jet operations only)(a)
Three Months %
Ended June 30, Increase/
1999 1998 (Decrease)
Enplanements (thousands) 11,493 11,261 2.1 %
Revenue passenger miles
(millions) 14,919 13,675 9.1 %
Available seat miles (millions) 20,163 18,574 8.6 %
Passenger load factor 74.0 % 73.6 % 0.4 pts.
Breakeven passenger load factor 61.9 % 59.0 % 2.9 pts.
Passenger revenue per
available seat mile 9.20c 9.39c (2.0)%
Total revenue
per available seat mile 10.15c 10.27c (1.2)%
Cost per available seat mile 8.97c 8.85c 1.4 %
Average yield per
revenue passenger mile 12.44c 12.75c (2.4)%
Average price per
gallon of fuel l38.13c 46.96c (18.8)%
Fuel gallons consumed (millions) 383 374 2.4 %
Actual aircraft in
fleet at end of period (b) 360 353 2.0 %
Average stage length 1,104 1,038 6.4 %
Six Months %
Ended June 30, Increase/
1999 1998 (Decrease)
Enplanements (thousands) 22,271 21,333 4.4 %
Revenue passenger
miles (millions) 28,656 25,747 11.3 %
Available seat miles (millions) 39,388 36,097 9.1 %
Passenger load factor 72.8 % 71.3 % 1.5 pts.
Breakeven passenger load factor 62.7 % 59.8 % 2.9 pts.
Passenger revenue per
available seat mile 9.17c 9.25c (0.9)%
Total revenue per
available seat mile 10.10c 10.15c (0.5)%
Cost per available seat mile 9.09c 8.99c 1.1 %
Average yield per
revenue passenger mile 12.60c 12.98c (2.9)%
Average price per
gallon of fuel 38.37c 49.30c (22.2)%
Fuel gallons consumed (millions) 754 726 3.9 %
Actual aircraft in fleet
at end of period (b) 360 353 2.0 %
Average stage length 1,093 1,026 6.5 %
Continental has entered into block space arrangements with certain other
carriers whereby one or more of the parties is obligated to purchase capacity
on the other carrier. The tables above do not include the statistics for the
capacity that was purchased by another carrier.
(a) Excludes regional jets operated by Continental Express
(b) Excludes six all-cargo 727 aircraft at CMI in 1999 and 1998.
%
Three Months Ended Three Months Ended Increase/
June 30, 1999 June 30, 1998 (Decrease)
Earnings per Common Share:
Income Before
Extraordinary Charge $ 1.93 $ 2.74 (29.6)%
Extraordinary Charge -- (0.06) NM
Net Income $1.93 $ 2.68 (28.0)%
Earnings per Common Share Assuming
Dilution:
Income Before
Extraordinary Charge $1.80 $ 2.11 (14.7)%
Extraordinary Charge -- (0.05) NM
Net Income $1.80 $ 2.06 (12.6)%
Shares used for Computation:
Basic 70.9 60.7 16.8 %
Diluted 76.8 81.3 (5.5)%
%
Six Months Ended Six Months Ended Increase/
June 30, 1999 June 30, 1998 (Decrease)
Earnings per Common Share:
Income Before Extraordinary Charge
and Accounting Change $ 3.25 $ 4.13 (21.3)%
Extraordinary Charge -- (0.05) NM
Accounting Change (0.08) -- NM
Net Income $ 3.17 $ 4.08 (22.3)%
Earnings per Common Share Assuming
Dilution:
Income Before Extraordinary Charge
and Accounting Change $ 2.98 $ 3.16 (5.7)%
Extraordinary Charge -- (0.04) NM
Accounting Change (0.07) -- NM
Net Income $2.91 $ 3.12 (6.7)%
Shares used for Computation:
Basic 69.7 59.9 16.4 %
Diluted 77.2 81.5 (5.3)%