Continental Airlines expects fuller planes in the third quarter and has seen slower declines in premium bookings in the past three months, the company said in a filing on Thursday.

The world's fifth largest airline said it expects load factors, a measure of how full a plane is, to be 3 points higher in the third quarter than in the year-ago period.

The Houston-based carrier plans to shrink mainline capacity 4.2 percent in the third quarter and 5.1 percent in 2009.

Revenue from premium travelers picked up slightly over the summer, the carrier said.

In August, high-yield revenue on mainline and regional flights was off 28 percent, better than the 31 percent decline seen in July and the 35 percent drop in June.

Continental expects to pay $1.99 per gallon for fuel in the third quarter.

Costs per available seat mile for the carrier's mainline operators would range from 10.36 cents to 10.41 cents in the third quarter, and 10.66 cents to 10.71 cents for the full year, it estimated.

Continental expects to end the third quarter with cash, cash equivalents and short-term investments of $2.5 billion to $2.6 billion. Cargo, mail and other revenue is expected to total between $360 million and $370 million in the third quarter.

Continental shares closed 30 cents lower at $16.32 on the New York Stock Exchange.

Continental is the third carrier this week to say business is picking up after Delta Air Lines and UAL Corp's United Airlines. On Thursday, the International Air Transport Association noted that travel demand, especially for premium seats, was beginning to rebound.

(Reporting by Deepa Seetharaman; Editing by Richard Chang)

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