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Continental posts surprise profit, demand improves

Continental Airlines posted a surprise quarterly profit and said travel demand, especially from lucrative business travelers, was improving modestly.

The decline in revenue that Continental books per passenger, a key measurement for airlines, eased in the fourth quarter compared with the third quarter, raising the prospects of a faster recovery, even if corporate travel is slow to rebound.

In the fourth quarter, mainline passenger revenue per available seat mile (PRASM) fell 10.4%, but this represented an improvement over the third quarter, when mainline passenger revenue slumped more than 20%.

“Year over year comparisons and continuing capacity discipline could facilitate an optical V-shaped recovery on PRASM growth even with a protracted return of corporate travel volumes,” said Stifel Nicolaus analyst Hunter Keay in a research note.

The world's fifth-largest airline reported net income of $85 million, or 60 cents per share, in the fourth quarter. A year earlier, it reported a net loss of $269 million or $2.35 per share.

Excluding special charges and a non-cash income tax benefit, Continental posted a profit of 3 cents per share. Analysts on average had expected the carrier to post a loss of 7 cents per share, according to Thomson Reuters I/B/E/S.

“While we are seeing some business traffic increasing, we likely have a long and slow road to recovery,” said Chief Executive Jeff Smisek in a statement.

Fourth-quarter revenue fell 8.3% to $3.2 billion. Mainline costs fell 8.6%.

The US airline industry has been hammered over the past two years as the surge in oil prices in 2008 and a severe recession in 2009 hurt demand for air travel.

But in recent months, travel demand has slowly gathered strength, paving the way for the airline industry to lift ticket prices.

Fourth-quarter load factor, a measure of how full a plane is, was 82.6%, up 3.3 points year-over-year.

Houston-based Continental has trimmed costs in the past year by cutting capacity and shedding jobs. The airline increased its checked bag fees and raised $1.7 billion in 2009 through stock and debt sales to bolster its balance sheet.

In the fourth quarter, Continental's other revenue rose 5.5% to $268 million, largely due to higher bag fees. Fourth-quarter mainline capacity edged 0.5% lower. (Reuters)