* Q1 share loss $1.07 vs loss estimate $1.15 Stocks * Average transatlantic fares fall 35 percent * Shares drop 6.5 percent in NYSE trade (Adds byline, conference call comments) By Deepa Seetharaman NEW YORK, April 22 (Reuters) - Continental Airlines Inc(CAL.N) posted a smaller loss than Wall Street had expected onWednesday but warned of weak transatlantic pricing, erasing anearlier gain in its shares and sending them sinking. The Houston-based company reported its fifth straightquarterly loss as traffic fell, especially among businesstravelers, echoing a trend seen among most major airlines. Theresults still beat analysts' estimates, and Continental sharesresponded by rising as much as 5 percent initially. But investors were rattled during the company's conferencecall when President Jeff Smisek said average fares to Europehad fallen 35 percent through the end of May. "The transatlantic is fairly ugly right now," Smisek saidduring the call. The comments sent Continental stock tumbling as much as 10percent in New York Stock Exchange trade. Houston-based Continental said its first-quarter losswidened to $136 million, or $1.10 per share from $80 million,or 81 cents per share, a year earlier.

Excluding $4 million of aircraft-related charges, theairline's loss was $1.07 per share, besting analysts' estimatesof a loss of $1.15 per share, according to Reuters Estimates Revenue fell 17 percent to $3 billion. Continental said its bottom line benefited in the firstquarter from the sharp drop in fuel prices. The world'sfifth-largest airline said it aims to cut capacity by 7.4percent in the second quarter and 4 percent to 5 percent in thefull year, roughly in line with what it announced in January. "There might be a feeling that Continental could do more interms of cutting back capacity and removing things likestaffing and other costs that go along with any kind ofcapacity reduction," said Majestic Research analyst MatthewJacob. The carrier was the fifth major airline to report a netloss, following American Airlines parent AMR Corp (AMR.N),United Airlines parent UAL Corp (UAUA.O), Delta Air Lines Inc(DAL.N) and Southwest Airlines Co (LUV.N). Continental said its traffic fell 11.2 percent from a yearbefore as many consumers "curtailed travel or purchasedlower-yield economy tickets." High-yield business travel has long been the meal ticketfor most legacy airlines, such as Continental. "The chance of a profit this year seems more challenging asuncertainty remains regarding a rebound in travel this year,"Jacob said.

"Some of the airline management teams have had a littlemore positive stance, whereas Continental management reallyserved to temper some expectations -- especially with some ofthe numbers they threw out." RASM DEGRADATION SLOWING During the conference call, Smisek, who is also thecompany's chief operating officer, noted that the rate ofdecline in revenue per passenger mile (RASM) appears to slowingand international business in the first quarter appeared to beprofitable, while the domestic side was not. Still, he said there were "pretty significant" declines inRASM in transatlantic markets. He said the company expects its transatlantic capacity tofall 7 percent to 8 percent in 2009. Continental is the most aggressive of all major airlines inpricing its transatlantic air travel, said FareCompare ChiefExecutive Rick Seaney in an email. For example a Continental nonstop flight from New York toLondon in mid-May runs about $451 Rival American Airlinescharges $631 for a similar flight. Jacob said management's comments offered little visibilityabout when demand trends might improve. "It feeds into greater uncertainty when investors aretrying to gauge the health of this business," he said.