Continental Expects $100m Windfall From Bag Fee
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Continental Airlines Inc. said it continues to expect that it will carry fewer customers in America but collect more from them, including more than $100 million a year in fees and savings by charging travelers to check luggage.
Continental, the fourth-largest American airline, said it expects mainline domestic capacity to shrink 2.9% in the third quarter and 4.5% for the year. The airline said its mainline domestic load factor — the percentage of seats filled — will drop between 1 and 2 percentage points for September compared with September 2007, but that it will see “substantially higher” mainline domestic yields, according to an SEC filing today.
However, regional capacity is rising — 7.7% for the third quarter and 3.4% for all of 2008. Continental expects its total capacity to rise 0.9% in the third quarter and 0.1% for the year.
Like other carriers, Continental has been raising fares and reducing the number of seats it flies to try to cover fuel prices that remain higher than a year ago, although not as much as they were over the summer.
Continental said it has hedged about 62% of it fuel needs for the third quarter by making a mix of bets on crude oil and heating oil.
This morning a JPMorgan analyst, Jamie Baker, raised his Continental earnings forecast to a loss of $1.77 per share, up from a loss of $2.23 per share he expected previously. Analysts surveyed by Thomson Reuters on average expect Continental to lose $2.29 per share in the second half.
“More bookings on significantly less capacity is simply a drawn-out way of expressing ‘pricing power,'” Mr. Baker wrote. “While we are often dismissive of bookings commentary, Continental’s language appears (to us) an effort to assuage largely misplaced investor fears that demand is poised to crater.”
On Friday Continental announced a $15 fee for the first checked bag, for travel beginning October 7. The new filing said it expects the fee to generate more than $100 million in “net benefits” on a yearly basis because of a combination of the fees and cost savings, presumably because fewer passengers will check bags.
Continental shares rose $1.36, or 8.4%, to $17.43 in morning trading, on a day when most other airline shares rose as well, with the price of oil down about $2 to $100.60 in morning trading on the New York Mercantile Exchange.
