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Airline Industry

Continental: Back-to-back snowstorms cost $25M in lost revenue

DAVID KOENIG  Mar 02, 2010

DALLAS — Continental Airlines Inc. says the back-to-back snowstorms that shut down its New York area hub twice last month cost it $25 million in lost revenue.

Despite the storms, the nation's fourth-largest airline reported a large increase in February traffic, and analysts said Continental will benefit from a rebound in business travel.

Airlines have been losing money and cutting flights for two years amid a slump in travel demand. With fewer flights out there, the airlines are now in stronger position to raise prices and return to profitability if the economy improves.

An international trade group for airlines said Tuesday that January demand for international air travel rose 6.4 percent compared with a year earlier. That topped a 1.6 percent improvement in December. The group, the International Air Transport Association, said it could finally look ahead with "cautious optimism."

Winter storms caused Continental to stop operations at the Newark Liberty Airport in New Jersey on Feb. 10 and Feb. 26, canceling hundreds of flights.

The timing, however, was fortunate for Continental, since the storms hit in a traditionally weak month for air travel. Continental lost $50 million when a hurricane shut down its Houston hub for more than two days in September 2008.

Continental, based in Houston, said late Monday that even with the storms, traffic including regional operations rose in February, and revenue per seat miles jumped about 8 percent compared with February 2009.

In January, the same measurement fell 1.3 percent. February's numbers are more evidence that air travel is recovering from the recession, which caused a sharp drop in lucrative business travel.

Much of the February gain was on regional operations under the Continental Express and Continental Connection names. Revenue per seat mile rose about 6 percent on the mainline Continental flights. Seat miles measure the miles a plane flies, multiplied by the number of seats, so they rise with longer trips on big jets.

Continental, the nation's fourth-largest airline, said traffic rose 3.3 percent last month compared with a year ago. Paying passengers flew 6.07 billion miles, up from 5.88 billion in February 2009.

Overall capacity shrank 3.8 percent to 7.81 billion available seat miles.

With traffic up and capacity down, planes were more crowded. Average occupancy jumped 5.2 points, to 77.7 percent.

While the February snowstorms knocked down Continental's revenue, they caused an uptick in the airline's revenue per available seat mile, a closely watched indicator of financial performance in the airline industry.

That happened because the flight cancellations left Continental with fewer available seats, yet the airline was able to rebook many travelers on remaining flights — taking up more seats in those planes. As a result, revenue per available seat mile rose about 1 percentage point compared with the increase the company otherwise would have expected.

Standard & Poor's upgraded Continental shares to "Strong Buy" from "Buy," citing the improving revenue trends. Analyst Jim Corridore said Continental will benefit this year from stronger travel demand, including business and first-class travelers.

UBS analyst Kevin Crissey said improving demand for corporate travel was bringing in more money. He said the numbers would look even better in March, when results will be compared to the extremely weak months of early 2009.

Crissey predicted that the legacy airlines — Delta, American, United, Continental and US Airways — will post gains of 15 percent or more for March revenue per available seat mile.

Continental operates about 2,500 flights a day in the U.S. and around the world. It has major hubs in Houston, Newark and Cleveland.

Continental: Back-to-back snowstorms cost $25M in lost revenue
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Source: AP

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