Continental Airlines lost $3 million in the second quarter as rapidly rising fuel prices ate up revenue gains from higher fares and surcharges.

Total revenue for the quarter of $4 billion increased 9 percent compared with the same period in 2007, as a result of increased fuel surcharges on passenger tickets and on cargo, as well as international growth, increased fees and fare increases. With a 4 percent increase in cargo ton miles, the airline recorded a 21 percent increase in cargo revenue. Passenger revenue was up 7.5 percent.

"Despite solid operational and financial performance, we were unable to generate enough revenue to keep pace with the stratospheric increase in fuel prices," said Jeff Smisek, president. "We will continue to take actions to increase our revenue and decrease our costs, while preserving our culture and core product integrity."

The combination of record high fuel prices, weakening economic conditions and a weak dollar has resulted in the worst financial environment for U.S. network carriers since the 9/11 terrorist attacks, the company said.

The airline announced capacity reductions beginning in September, including a 10-percent cut in domestic mainline capacity, a 15.4-percent decline in domestic mainline departures and a 6.7-percent drop in consolidated capacity in the fourth quarter 2008 compared to the same period 2007. Continental will also accelerate the retirement of older aircraft to remove the least fuel-efficient models.

Leasing and financial arrangements are expected to raise more than $900 million for operations in the coming year.