Earnings Preview: Continental Airlines' costly 2Q

OVERVIEW: Like other carriers, Houston-based Continental is struggling with high fuel costs and plans to reduce flying in the U.S. later this year.

The airline boasts a younger, more fuel-efficient fleet than many of its rivals, but costs are still rising sharply--Continental estimates its average fuel price for the second quarter climbed 66 percent from a year ago, to $3.46 per gallon.

Continental has joined other carriers in raising fares several times this year, but it still serves meals in coach on longer flights and has resisted the $15 fee on a first checked bag now charged by several competitors.

But make no mistake, Continental is cutting costs. The company will eliminate 3,000 jobs or nearly 7 percent of its work force. It will reduce capacity by 11 percent this fall and ground 67 aircraft by the end of next year.

BY THE NUMBERS: Analysts, on average, expect Continental to report a loss of 52 cents per share on sales of $4.04 billion for the second quarter, according to a survey by Thomson Financial.

Analysts predict a full-year loss of $4.92 per share on revenue of $15.43 billion.

Those loss estimates don't include special items. Continental said last week it would take a $58 million charge in the second quarter to write down the value of planes and other equipment because of upcoming capacity reductions.

But overall, the company will post a net gain of $22 million from special items in the second quarter because of a tax credit and the sale of its remaining stake in Latin American carrier Copa Holdings SA. Plus, the company said it would recognize gains of $33 million from fuel hedging.

But Continental warned that further charges related to capacity cuts are likely in the third quarter and beyond.