Continental’s Results Surpass Southwest’s

Travelers packed planes operated by Continental Airlines and Southwest Airlines over the summer, but Continental’s third-quarter profit grew while Southwest’s earnings fell, another sign that traditional carriers are narrowing the gap with low-cost rivals.

Continental Airlines Inc. said it earned $237 million, or $2.17 a share, in the July-September period compared with $61 million, or 80 cents, a year earlier. Excluding gains from selling stock in Panama’s Copa Airlines, Continental said it would have earned $146 million, or $1.36 a share.

Excluding one-time items, Continental beat the $1.22-a-share forecast of analysts surveyed by Thomson Financial.

Southwest Airlines Co. earned $48 million, or 6 cents a share, in the third quarter, compared with $210 million, or 26 cents, a year earlier.

Excluding a write-down of fuel price-hedging contracts, Southwest said it would have earned $154 million, or 19 cents a share. On that basis, analysts were looking for 20 cents a share, according to Thomson.

Both airlines reported big increases in revenue. Continental said sales rose 17% to $3.52 billion, and Southwest said revenue grew 17.7%, to $2.34 billion.

Analysts had expected a bit more from each carrier, and company executives blamed the shortfall on a drop in travel after British authorities said they had discovered a plot to blow up airliners.

Shares of Continental gained 41 cents to close at $32.65, and Southwest shares fell 52 cents to close at $16.02.

Continental Chief Executive Larry Kellner warned that revenue growth might be slower in the traditionally weak fourth quarter but still gave an upbeat outlook.

“We feel pretty good about how the business is doing and are optimistic about the remainder of 2006 as well as the outlook for 2007,” Kellner said.

Continental jets flew 82.7% full on average, up from 81.7% a year earlier, and the airline benefited from recent fare increases.

Fuel costs remained a problem, even though they began to fall during the quarter. Still, Continental said its fuel bill rose 25.4%, to $858 million.

At Southwest, an eagle eye on cost-cutting helped the Dallas carrier post its record 62nd straight profitable quarter. Southwest estimated that it saved $200 million in the third quarter by hedging its fuel purchases -- paying extra to fill up at reduced prices later on.

Still, fuel costs at Southwest jumped 67.1% to $563 million, and Southwest has less protection against high fuel prices after 2007.