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Continental expects bigger revenue hit

Continental Airlines Inc. expects the revenue hit it will take because of fare cuts by rival Delta Air Lines Inc. to be greater than first anticipated.
/ Source: The Associated Press

Continental Airlines Inc. said the revenue hit it will take as a result of big fare cuts by rival Delta Air Lines Inc. is greater than first anticipated.

The Houston airline said Wednesday in a filing with the Securities Exchange and Commission that its revenue will drop $200 million annually as a result of Delta's January fare cuts. That's more than the $100 million to $150 million Continental had originally expected.

In January, Atlanta-based Delta implemented "Simplifares" on domestic routes, flattening the fare structure to a few classes and cutting top fares in half. Delta executives have said they expect the change to hurt revenue initially, but that eventually the larger number of passengers will offset the lower fares.

Other major airlines, including Continental, grumbled that the fare cuts would harm the industry at a time when they are grappling with record-high fuel costs and stiff competition. Still, major airlines matched the cuts to remain competitive. Low-cost carriers were largely unaffected, because their fares were mostly lower than Delta's new fares.

"Our experience to date as a result of Delta's fare reduction has demonstrated the fare reductions are not being sufficiently offset by increases in passenger traffic so as to make them revenue positive, and any associated cost reductions are immaterial to date," Continental said in the filing. The airline said that the lower fares have stimulated demand, but the expense of handling the additional passengers may hurt results.

In February, Continental's airplanes were fuller than the year before, but the low fares meant the airline didn't break even for the month. For the entire network, Continental posted a 74 percent load factor, up from 69 percent last year. Domestic load factor was even higher, at 77 percent. Still, that's well below the 88 percent load factor Continental needed to break even.