Week 9 Final
Evaluating Financial Health
Accounting 230 – Financial Reporting: Peeking Under the Financial Hood
Continental Airlines (Continental) was incorporated in 1980. Based out of Houston, Texas, Continental Airlines is fifth largest airline in the world. This is based on the 2009 number of scheduled miles flown by revenue passengers (SEC1). Continental and its smaller divisions offer more than 2,750 departures in the Americas, Europe and Asia. Continental currently employs more than 43,000 people. More than 67 million people per year choose continental as their chosen air carrier (Unknown2). With such a big company comes incredible opportunity for large ...view middle of the document...
6 percent (Unknown3). The total revenue for the second quarter equaled $3.7 billion. Continental bases their costs on the available seat mile (CASM). In the second quarter, CASM increased 3.9 percent in comparison to the second quarter in 2009 (SEC2). This is likely due to the increase in fuel cost over the period. At the end of the quarter, there was a total of $3.5 billion in short-term investments, cash and cash equivalents (SEC2).
The third quarter estimates are shown to have a 17.7 percent increase in revenue per passenger (Herbst). Total operating revenue is expected to increase to 18.7 percent. This is only a .1 percent increase from the second quarter’s reporting. Total operating costs are expected to increase to 7.4 percent. The second quarter increase was only 3.7 percent (Herbst). The projections show a trend similar to the second quarter of 2010. Along with an estimated increase of total revenue there is corresponding increase in total operating costs. Also in the third quarter the CASM is expected to increase by 15.5 percent (Herbst). This is likely due to the high expected increase of 12 percent in fuel costs (Herbst). Based on the estimates the company’s revenue is slowing gaining profits while the expenses are quickly adding up.
The following industry comparison is based on the nine largest airline companies (Herbst). Comparatively Continental Airlines is financially healthy. The company does stand in the middle of the pack as far as revenue per scheduled miles flown per passenger. The estimated third quarter revenue is nearly 1% higher than the industry estimate of $3.9 billion (Herbst). However, the estimated third quarter operating expenses is also slightly higher (0.3%) than the industry average (Herbst). Net income is expected to be higher than the industry average. The third quarter is also estimating a very large increase in earnings per share, putting the 2010 third quarter estimate well above the industry average as well. These estimates are expected to last throughout 2010 (Herbst).
It can be seen on the financial statements provided by the multiple avenues of information that Continental Airlines has made great strides in improving its financial health. This...