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Thu, Apr 17, 2008

American, Continental Post Big Q1 Losses

Carriers Speed Up Plans To Cut Flights, Ground Planes

Hoping to staunch the bleeding now, on Thursday both Continental Airlines and American Airlines followed up announcements of sizable first quarter losses, with plans to drastically scale back capacity and ground their less fuel-efficient aircraft.

American posted a $328 million loss for the period, which ended March 31. That's the worst Q1 performance for the Fort Worth-based carrier since 2003, reports The Dallas Morning News, and a stark contrast to the $81 million profit American ecked out for the same period in 2007.

"As a result of increased fuel prices and growing concerns about the economy," American plans to cut capacity by 1.4 percent for the year, mostly by cutting domestic routes in favor of more profitable international flights. Not two months ago, American said it planned to increase capacity by 0.2 percent -- another sign record high prices for oil have shocked airlines.

Down south in Houston, Continental Airlines reported a first quarter net loss of $80 million, which climbs to $85 million excluding a $5 million after tax gain from the sale of aircraft.

Both airlines plan to park their older, less fuel-efficient planes. American will ground some McDonnell Douglas MD-80s, and return three Airbus A300 widebodies to lessors. The airline also plans to speed up purchases of Boeing 737-800s.

"Given that the 737-800 is about 25 percent more fuel-efficient than the MD-80, and in light of high fuel prices, it make sense to accelerate the replacement of our MD-80s," Tom Horton, chief financial officer at American-parent company AMR Corp.

Continental plans to remove from service an additional 14 older Boeing 737-300s as leases expire on those aircraft from September 2008 to April 2009. These 14 737-300s are in addition to the 34 737-300s and -500s that were already planned to be removed from service in 2008 and 2009.

Continental also expects to reduce regional jet capacity beginning in the fall 2008, citing the higher cost-per-available-seat-mile (CASM) of those smaller, turbofan-equipped planes. The airline notes, however, its plans are "fluid," as Continental works to negotiate better contracts with ExpressJet, and as CRJs flown for Continental by Chautauqua Airlines come off lease.

In a message to employees, Continental CEO Larry Kellner praised workers for their efforts, which kept the airline's Q1 losses from being far worse.

"Thanks to the continued hard work and dedication of my co-workers, we ran a solid operation despite extremely challenging times," said Kellner. "In this rapidly changing competitive environment, we will stay focused on running a clean, safe and reliable airline with the best customer service in the industry."

Those sentiments come as Continental is rumored to be close to announcing a merger with United Airlines, a union that would produce the world's largest airline -- surpassing even the "new global airline" proposed earlier this week, through the joining of Delta and Northwest.

FMI: www.aa.com, www.continental.com

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