Continental Airlines issues cost warning

Continental Airlines Inc. said Thursday that its second-quarter profit rose 15% as it carried more passengers and increased revenue on transatlantic flights.

Although the strong summer traffic helped Continental beat higher fuel and labor costs, the airline warned that costs would rise in the third quarter.

Houston-based Continental signaled that it planned to slow its ambitious growth plans, a move praised by analysts.

Continental expects capacity to grow 3% to 4% in 2008, down from an earlier target of 5% to 7%. The carrier said it would sell older planes that burn more fuel.

Continental said it earned $228 million, or $2.03 a share, compared with $198 million, or $1.84, a year earlier. This quarter’s earnings-per-share included a 7-cent charge to settle a pilots’ pension case.

Analysts surveyed by Thomson Financial had expected the company to earn $1.84 per share.

Revenue rose 5.8%, to $3.71 billion. That was up from $3.51 billion a year earlier, and nearly in line with the $3.72 billion predicted by analysts.

Continental has been criticized recently by rivals and analysts for increasing capacity, which can drive down prices and profit. But the company said Thursday that it was scaling back its expansion plans by selling 10 older Boeing 737s to a Russian airline and was in talks to sell five other planes.