Continental Airlines posts loss

NEW YORK (Reuters) - Continental Airlines Inc (CAL.N) on Thursday posted a first-quarter loss and said it would reduce capacity as record fuel costs continue to roil the industry.

The fourth-largest U.S. carrier reported a net loss of $80 million, or 81 cents a share, compared with a year-earlier profit of $22 million, or 21 cents a share.

Excluding special items, the loss was 86 cents a share. Analysts on average had expected a loss of 94 cents, according to Reuters Estimates.

Revenue increased 12.3 percent to $3.6 billion, helped by international growth, fuel surcharges and modest fare hikes.

Continental plans to reduce domestic mainline capacity by 5 percent beginning this fall and to take another 14 single-aisle 737-300 aircraft out of service as leases expire beginning in September.

These are in addition to the 34 737-300s and 500s that were already planned to be removed from service in 2008 and 2009.

"In this fuel environment, we must reduce our domestic capacity to help reduce our losses in the domestic system," Jeff Smisek, president of Continental said in a statement.

Rising costs and a weak U.S. economy helped prompt a merger deal between two of Continental's biggest rivals, Delta Air Lines (DAL.N) and Northwest Airlines Corp NWA.N, and could spur a wave of further consolidation amid fears of falling travel demand.

Continental and UAL Corp's (UAUA.O) United Airlines have reportedly been in merger talks for months.

Northwest previously held a "golden share" of Continental preferred stock, which restricted Continental's merger prospects. But Continental has now redeemed the golden share due to Northwest's merger plans.

(Reporting by Mark McSherry; Editing by Mark Porter and Lisa Von Ahn)