Continental projected a drop in its unit revenue for January, surprising investors who expected revenue per available seat mile (RASM) numbers to improve as it has been doing in the last few months.
The projections were driven by a slow recovery of business traffic and stronger-than-expected leisure demand in December, executives said.
“We are seeing business traffic come back slowly, but we’re stressing the word ‘slowly’,” Chief Marketing Officer Jim Compton said during a call with analysts and reporters.
Continental said its mainline RASM number would fall four percent in January. The carrier says consolidated RASM, which accounts for the performance of its feeder airlines, would fall three percent.
That outlook overshadowed news that Continental beat earnings forecasts for the fourth quarter. Continental shares dropped two percent, reversing an earlier rise.
The Arca Airline index fell 2.2 percent alongside a dive in the broader stock market. Southwest shares fell 0.4 percent to $11.29.
The results come a day after American Airlines parent AMR Corp posted a quarterly loss, but said demand was improving. Higher-than-expected revenue, cost cuts and a drop in fuel costs helped Southwest and Continental surpass analyst estimates.
US airlines have cut jobs and trimmed capacity in the past two years in an effort to hem costs in the face of a severe recession in 2009 and a surge in fuel prices in 2008.
Southwest, the leading US discount carrier, expects unit revenue to rise in the first quarter of 2010, but in a statement, CEO Gary Kelly said 2010 could be another challenging year.
Continental posts surprise profit
Continental said declines in its corporate revenue were abating. High-yield revenue, which can be used as a proxy for corporate demand, fell one percent in December, after a drop of nearly 40 percent back in May.
The world’s fifth-largest airline reported net income of $85m, or 60 cents per share, in the fourth quarter. A year earlier, it reported a net loss of $269m or $2.35 per share.
Excluding items, Continental posted a profit of three cents per share. Analysts on average expected the carrier to post a loss of seven cents per share, according to Thomson Reuters.
Continental expects mainline domestic capacity to remain flat. Continental expects international capacity to jump between four percent and five percent this year.
Southwest notches another profit
Dallas-based Southwest said it would keep capacity flat this year, but focus on flying to more profitable cities such as New York, Boston and Milwaukee.
The company’s yield, or revenue per available seat mile, rose 7.4 percent in the fourth quarter.
“We attribute [the rise in yield] to its domestic-centric network, its ‘bags fly free’ promotion and to recent revenue enhancement initiatives,” S&P analyst Jim Corridore said in a research note.
Southwest reported net profit of $116m, or 16 cents a share, compared with a net loss of $56m, or eight cents per share, a year earlier.
Excluding items, it posted a profit of 10 cents per share. Analysts on average expected the carrier to post a profit of seven cents per share, according to Thomson Reuters.
Southwest recently unveiled an early boarding charge of $10, but does not charge for checked bags, an important revenue source for other major airlines. Southwest says its strategy has helped it seize market share.
Southwest has derivative contracts for about half of its estimated 2010 fuel consumption at about $100 per barrel.
