Fuel costs hit Continental, Southwest

Continental Airlines Inc. posted a first-quarter loss yesterday, and Southwest Airlines Co. said profit had fallen 63 percent as the industry struggled with surging jet-fuel costs.

The deficit at Continental, the fourth-largest U.S. airline, was $80 million, compared with earnings of $22 million a year earlier. Southwest, the biggest discounter and the second-biggest carrier at Philadelphia International Airport, said net income had declined to $34 million. Both beat analysts' expectations.

Yesterday's results showed the two carriers "have done a good job of managing their costs and yields, whereas American has not," said Julius Maldutis, the president of consulting firm Aviation Dynamics Inc., of Bayside, N.Y.

Gary C. Kelly, Southwest's chief executive officer, said growth in passenger traffic was strong in several places where the airline had started service in recent years, including Philadelphia. The airline has added five flights to its Philadelphia schedule this year, giving it a total of 64 daily departures.

Southwest, which is based in Dallas, expects to finish renovations this summer on gates it recently acquired in the airport's Terminal E from Delta Air Lines Inc., which moved to Terminal A-East, spokeswoman Whitney Eichinger said. When the renovations are complete, Southwest will have 10 gates in Terminals D and E, compared with eight now, she said. With 10 gates, the airline will be able to move out of three gates at the end of the E concourse in preparation for another expansion project that will provide it even more space, she said.

AMR Corp.'s American Airlines, the world's biggest carrier, posted a wider-than-projected $328 million loss Wednesday, and losses at the eight largest U.S. airlines may total $1.4 billion, Merrill Lynch & Co. Inc. analyst Michael Linenberg estimated.

Both Continental and Southwest pared their 2009 growth plans after a quarter in which jet fuel averaged $2.90 a gallon, up 63 percent from a year earlier. Southwest managed to extend an 18-year streak of quarterly profits by using hedges to lock in prices in advance.

Four small U.S. airlines have filed for bankruptcy protection in the last month: Frontier Airlines Holdings Inc., Skybus Airlines Inc., Aloha Airgroup Inc. and ATA Airlines Inc.

"We're going to see many more carriers cease operations" with crude oil at current levels, Maldutis said, while declining to name any he deemed vulnerable.

Southwest's profit was 5 cents a share, down from 12 cents a share, on sales of $2.53 billion. Analysts had expected per-share earnings of 1 cent, the average of 15 estimates. Southwest shares rose 11 cents to close yesterday at $12.61.

Continental's loss was 81 cents a share on revenue of $3.6 billion, compared with a profit of 21 cents a share a year earlier. The Houston carrier had been expected to lose 92 cents a share, the average of 13 analyst estimates compiled by Bloomberg. It was the carrier's second straight quarterly loss. Continental shares rose 27 cents to close at $21.11.