Continental Airlines' yields weaken in September, load factors strengthen


Continental Airlines' dire yield performance continued last month. The Houston-based carrier estimates that consolidated passenger revenue per available seat mile (RASM) was down by 18.5% to 19.5% year-on-year in Sep-2009 (mainline RASM down by 20.0-21.0%), for the third largest RASM contraction in the past 12 months - and eighth consecutive double-digit decline - reflecting continued discounting and ongoing weakness in premium travel demand.

FLATLINE: Continental Airlines' consolidated PRASM growth (% change year-on-year): Sep-2008 to Sep-2009

For Aug-2009, the carrier confirmed that consolidated PRASM decreased 17.2% year-on-year, on the higher end of its initial estimate (mainline down 17.9%), after reductions of 17.4% in Jul-2009 and 19.9% in both May-2009 and Jun-2009.

On the positive side, the Sep-2008 results included a 3 ppt increase in both consolidated and mainline RASM related to a reduction in the company's frequent flyer liability. Summing the reductions over a two-year period, Continental's RASM reduction was 6.1% last month, an improvement from a combined two-year contraction of 11.9% in August and 12.6% in July - suggesting some improvement has occurred.

Continental Airlines' consolidated PRASM growth (two year reductions): Feb-2009 to Sep-2009

Load factors strengthen

Also on the positive side, Continental Airlines reported a consolidated (mainline plus regional) load factor of 81.5% in Sep-2009, a 5.0 ppt year-on-year improvement, with a mainline load factor of 82.2% (+4.8 ppts).

Domestic load factors gained 5.5 ppts to 84.0%, with international mainline load factors up 4.1 ppts to 80.4%, meaning that all four September load factors were records for the carrier. Meanwhile, Continental's regional operations had a Sep-2009 load factor of 75.8% (+6.3 ppts), for the only segment to see a load factor below 80%.

The load factor improvement occurred as Continental increased consolidated capacity (ASMs) by 0.5% in the month, while traffic (RPMs) was down by 7.0% (mainline capacity was up 0.5% with traffic up by 6.7%).

FY2009 load factors of 81% expected; strong cash balance around USD2.5 billion

Looking forward, Continental expects 2009 load factors to average 81% (82% for mainline operations), on a 5.2% capacity (ASM) reduction. While no RASM figures were disclosed, contractions are expected to continue, as the US enters the weak Winter season and price discounting continues.

Continental ended 3Q2009 with unrestricted cash, cash equivalents and short-term investments balance of approximately USD2.55 billion. A year-end cash balance of USD2.5-2.6 billion is expected.

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