HOUSTON (AP) — Continental Airlines Inc. said yesterday that soaring fuel costs pushed it to a loss for the first quarter, and it plans to retrench by mothballing planes and reducing flights.

Also, Continental took a small but public step toward combining with another carrier after this week's announcement that Delta Air Lines Inc. has agreed to buy Northwest Airlines Corp.

Chairman and chief executive Lawrence Kellner had repeatedly said Continental would prefer to remain independent, but said yesterday that the Delta announcement had changed things.

"We are reviewing our strategic alternatives and will do what we need to do to continue our success and to remain a strong, long-term competitor," he said on a conference call with analysts.

Kellner didn't comment on speculation that Continental could combine with UAL Corp.'s United Airlines, but the Houston-based carrier took a step toward a possible deal by buying out Northwest's right to veto a deal involving Continental. Continental was able to do that — for a token $100 — after Northwest announced its deal with Delta.

In the first quarter, Continental lost $80 million, or 81 cents per share, in the January-March period compared with a profit of $22 million, or 21 cents per share, a year earlier.

Excluding a gain on airplane sales, Continental said it would have lost 86 cents per share in the first three months of this year.

Analysts, who usually exclude one-time gains from their calculations, expected a loss of 93 cents per share, according to Thomson Financial.

Revenue rose 12.3 percent to $3.57 billion from $3.18 billion a year earlier, but costs rose even more quickly — up 16.7 percent.

Fuel was the leading culprit, jumping 53 percent — or $364 million — and surpassing labour as the airline's largest expense.

The airline said it would take 14 older Boeing 737-300 planes out of service between next September and April 2009, on top of planes it had already said it would sideline.

Continental grew over the past year, as capacity to carry passengers expanded by 4.1 percent. Yet, demand remained strong and planes averaged occupancy of 78.8 percent, down only slightly from a year earlier despite more seats.

But the airline said it would reduce domestic capacity five percent beginning this fall because of concern over record high fuel prices, a weakening economy and weak dollar. Including international routes, which are more profitable — Continental launched a service to London's Heathrow Airport in March — the airline still expects to increase overall capacity by two percent for all of 2008.

Continental also plans to reduce regional jet capacity and is negotiating with its partners.