"Continental Reveals Costs of Security Alert"

Tuesday, September 5, 2006

Continental Reveals Costs of Air Alert 
By Doug Cameron
United Kingdom - The Financial Times


Continental Airlines has revealed that last month's security alert cost the
carrier millions of dollars in lost revenue, in the first admission by a
non-UK carrier that heightened security concerns are having a lasting
financial impact.

Houston-based Continental was one of three US airlines alongside American
and United identified by US security officials as the target of an alleged
plot to bomb transatlantic aircraft following a UK-led intelligence
operation on August 10.

The alert led to sweeping new security measures at airports, and the ensuing
disruption forced British Airways, Ryanair and other UK-based carriers to
cancel hundreds of flights.

Non-UK carriers maintained there had been minimal impact on passenger
bookings after the initial disruption, but Continental's latest monthly
traffic report has suggested the carrier was forced to cut fares in order to
support higher traffic levels.

Continental is one of the largest operators of trans-atlantic services, and
continued to add flights over the summer alongside rivals such as Delta,
leading analysts to forecast downward pressure on fares.

Continental said late on Friday that its margins in August had been hit by
what it described as the "elevated security concerns", reducing its closely
watched revenue per available seat mile by 1.5 percentage points from the
expected level.

The airline said RASM rose between 6.5 per cent and 7.5 per cent during the
month, below analysts' estimates, in spite of record traffic and load
factors on other routes, and trailing the 9.6 per cent rise in July.

Continental's mainline RASM which excludes regional feeder services rose
5.5-6.5 per cent in August, and traffic was 12 per cent higher in terms of
revenue passenger miles.

Merrill Lynch had forecast an increase of 7-8 per cent, and while this was
in line with the performance excluding "security concerns", the carrier had
consistently beaten estimates in recent months.

Continental is one of the few US carriers to release monthly revenue
statistics broken down by region.

Its report will raise concerns about the sustainability of the industry's
financial recovery, as airlines enter the slower travel season following the
Labour Day holiday.

All the major US carriers reported higher operating profits during the
second quarteras a series of fare increases and continued cost-cutting
helped to counter higher fuel prices.

The higher fares have been helped by capacity cuts over the past two years,
but year-on-year comparisons will become tougher for airlines to match after
August, noted Merrill Lynch.

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