Ticket Errors, Canceled Flights Cited : Continental Anticipates Big 2nd-Quarter Loss
Continental Airlines will post an unexpected loss in the second quarter because of a $131-million charge resulting mostly from ticketing errors, currency fluctuations and having to put many of its passengers on other airlines because of canceled flights.
Continental’s parent, Texas Air Corp., said Friday that the airline had underestimated by $67 million its liabilities for ticketing errors, currency fluctuations and the way it records revenues. The remaining $64 million of the loss was caused because the airline had to find seats for ticketed passengers on competing airlines.
Bruce Hicks, a Texas Air spokesman, said in a telephone interview from company headquarters in Houston that the losses had occurred in late 1987 and early 1988 but would be recorded as charges against income in the second quarter of this year.
He declined to predict the size of the total second-quarter loss, which will be made public sometime next month. But he said Texas Air, which also owns Eastern Airlines and is the nation’s largest airline company, had hoped that there would be a “significant improvement” during the quarter compared to the $72-million loss reported for the second quarter of last year.
“We had hoped it would be break-even or a bit less,” he said, “but now it will be a significant loss.” However, a company statement issued Friday said that Continental “expects to be profitable for the last half of 1988.”
For all of 1987, Continental lost $258 million. In the first quarter of 1988 the airline’s losses were $80.5 million, compared to $97.9 million in the same period of 1987.
According to Hicks, “brutal” winter weather was the main reason that so many flights were canceled late in 1987 and early this year. He said there had also been major problems connected with the integration of People Express, which Texas Air bought in February, 1987, and consolidated into Continental.
Hicks said the loss to be reported for the second quarter has nothing to do with the recent safety inspection by the Federal Aviation Administration of both Continental and Eastern and an inquiry into Texas Air’s finances by the Transportation Department.
Analysts said the loss will not be devastating for Texas Air or its subsidiary, but they said it shows the companies had been lax in their accounting procedures.
“I comes down to a different accounting method of recognizing revenues and, in this case, they overrecognized revenues,” said Paul Karos, airline analyst with First Boston Corp., a New York-based brokerage. “This is a one-time adjustment in earnings. There is no cash impact.”
What occurred, Karos added, “is something to be concerned about regarding their internal controls (but) it looks as if they have identified the problem. This will not affect the company at all, (though) it make one a bit alarmed about the company. . . . It will not dramatically change Wall Street’s view of the company.”
