Continental: New Contracts to Save Costs: Financial News - Yahoo! Finance
Continental Enters Three Contracts for IT and Plane Maintenance to Save $100 Million Per Year
HOUSTON (AP) -- Continental Airlines Inc. has entered new contracts for information-technology and aircraft maintenance services as part of its initiative to reduce costs by $100 million each year, the airline said Tuesday.
ADVERTISEMENT
Continental granted Electronic Data Systems Corp. a seven-year contract worth $550 million to update and manage its reservations systems and computer networks. Also, Hewlett-Packard Co. will update the company's airport computers and provide servers, storage, software and other services for an undisclosed sum.
The IT contracts are part of Continental's plan to upgrade its "legacy" hardware, software and systems, the company said.
Under a separate contract, General Electric Co.'s aviation business will provide aircraft maintenance and technical services through 2020. Continental will pay GE Aviation fixed hourly rates instead of a flat fee.
Chief Financial Officer Jeff Misner hinted at the contracts in a statement about third-quarter earnings on Thursday, saying the company would save $100 million annually once it finalized and implemented its cost-saving initiative. That led some to speculate the company was referring to contract-flying agreements with ExpressJet Holdings Inc., whose shares have risen 26 percent since Wednesday's close.
The airline industry is struggling to maintain a delicate cost balance as fuel prices have recently touched new records and other costs, like labor, have escalated.
Many have tightened capacity -- squeezing more fliers onto fewer flights -- and raised fares to offset those costs. However, increased competition limits airlines' ability to raise prices without losing customers. Continental's new contracts are part of an effort to cut more peripheral costs to boost profits.
"The high cost of fuel continues to pose challenges for us, but we'll keep working those costs we can control," Misner said in a statement Thursday.
The industry's cost-saving initiatives have been mostly successful so far, according to Calyon Securities analyst Ray Neidl.
"Despite high and rising oil prices, most carriers have been able to earn adequate profits through stringent cost controls, moderate capacity trimming, strong international operations, and marginal (traffic) increases," Neidl said in an industry outlook earlier this month.
Where's the announcement?
Linear Mode
