Higher fares boost Continental, Southwest profits

By Kyle Peterson

CHICAGO (Reuters) - Continental Airlines Inc. (CAL.N: Quote, Profile, Research, Stock Buzz) and Southwest Airlines Co. (LUV.N: Quote, Profile, Research, Stock Buzz) on Thursday posted first-quarter profits on broadly higher fares, but the results showed early signs that domestic air travel demand might be waning.

Both airlines managed to overcome a unusually stormy quarter -- which is seasonally their weakest -- but their shares fell on fears that the nascent airline recovery might falter.

Continental stock was down 1.6 percent, while Southwest, which also played down recent talk of a leveraged buyout, fell 2 percent.

"There is a growing body of evidence that domestic demand is deteriorating, further calling into question the likelihood of 2008 results anywhere near the level implied by consensus," JP Morgan analyst Jamie Baker wrote in a research note.

Continental's results topped expectations and were the company's first profit for the March quarter since 2001. But the U.S. No. 4 airline said yields from its regional partners -- which track the price of tickets -- fell slightly from a year earlier, indicating softer demand.

Southwest, the leading discount carrier and No. 6 U.S. airline, warned that unit revenues in the current quarter would fall below last year's high levels, also indicating that demand may be waning in the domestic air travel market.

Southwest Chief Executive Gary Kelly, speaking on CNBC, also downplayed talk that the airline was a leveraged buyout candidate. That speculation had boosted the company's shares on Wednesday.

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