Continental Airlines announces Worldwide Fare Increases

Continental Airlines today announced that it has raised fares worldwide, effective immediately. The carrier also said it is considering additional furloughs, wage and benefit concessions and reduced pension funding.

The fare increase is US$10 each way for flights up to 1,000 miles, and US$20 each way for flights over 1,000 miles. The carrier said it expects that the fare increase will only offset 15 - 20 percent of the economic impact of record fuel prices, which recently hit their highest price since crude oil contracts began trading on the New York Mercantile Exchange 21 years ago.

"We worked hard to generate $900 million of operating income improvements by removing non-value added expense and generating additional revenue over the past two years. We originally expected that this would let us break even in 2004," said Gordon Bethune, chairman and chief executive officer of Continental Airlines. "While we may be faring better than our financially weaker competitors, none of us can afford to operate with these high fuel costs. If we are not successful in passing along these exorbitant fuel costs through higher fares, we will ultimately be forced to seek significant wage and benefit concessions and furloughs of our dedicated and hard working co-workers in order to survive."

The price of crude oil closed at a record high of $41.55 per barrel on May 17, 2004, and continues to trade above $40 per barrel. In March 2003, when Continental originally planned for breakeven results in 2004, it expected jet fuel prices to average approximately $ .68 per gallon for the year. At today's prices of approximately $1.14 per gallon, Continental faces an additional $700 million in annual operating expenses. With fuel prices at these levels and the current weak fare environment, the company said it expects to post a loss in the quarter ending June 30 and a significant loss for 2004 and beyond.

Continental expects to end the second quarter with an unrestricted cash and short term investment balance of between $1.5 and $1.6 billion. However, continued record high fuel prices without an offsetting improvement in the revenue environment will result in continued pressure on the company's cash balances.

Unless Continental experiences a prompt and significant reduction in fuel prices or a material improvement in the weak revenue environment, the company said it anticipates that it will have no recourse but to furlough additional employees and seek wage and benefit concessions from all its employee groups.

Continental is also reevaluating whether to fund its pension plan above the minimum amount of $17 million required for 2004. In order to maintain flexibility for its funding options, the company also expects to apply for deficit reduction contribution relief under the recently enacted Pension Funding Equity Act for pension contributions otherwise due in 2004 and 2005. Continental had originally expected to contribute approximately $300 million to its pension plan in 2004 to maintain the plan's funding at 90 percent of the company's current liability.