Welcome to Continental Airlines’ second quarter 2010, financial results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference call is being webcast and recorded Thursday of July 22, 2010. I would now like to turn the conference over to Nene Foxhall, Senior Vice President of Communications and Global and Government Affairs; and DeAnne Gabel, Director of Investor Relations. First, Ms. Foxhall, ma’am you may begin.

Thank you John. Good morning everyone, joining us here in Houston are Continental’s Chairman, President and Chief Executive Officer; Jeff Smisek, Executive Vice President and Chief Marketing Officer; Jim Compton; Executive Vice President and Chief Financial Officer, Zane Rowe; Executive Vice President and Chief Operations Officer Mark Moran and Senior Vice President Finance and Treasurer, Gerry Laderman to discuss Continental’s second quarter 2010 financial results. Jeff will begin with some overview comments after which Jim will review our capacity and revenue results. Zane will follow with a discussion of Continental’s cost structure and balance sheet. At that point we will open the call for questions. And with questions, we will follow the executive comments and then we will begin a question-and-answer session for the media. We would appreciate if each of you would limit your questions to one with one follow-up. With that I will turn it over to, DeAnne.

Thank you Nene, earlier today we issued an update for investors presenting information relating to our financial and operational outlook for the third quarter and full-year 2010 and other information. This investor update was included in the filing with the SEC. Today we will be discussing some non-GAAP financial measures such as net income excluding special items. Please note that a reconciliation of the GAAP to non-GAAP financial measures as well as the investor update can be found on our website at continental.com under the Investor Relations section. In addition, our discussion today may contain forward-looking statements that are not limited to historical facts, but reflect the company’s current beliefs, expectations, or intentions regarding future events. All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially. For examples of such risks and uncertainties please see the risk factors set forth in the company’s 2009 10-K and with other security filings. With that, I will turn the call over to Jeff.

Thank you, Nene and DeAnne. Good morning and thanks for joining us. I also want to thank all my co-workers. Across the system, they have done a tremendous job managing record high load factors while delivering a great product and excellent customer service, day in and day out. I appreciate all their efforts. Continental reported net income of $257 million or a profit of $1.60 per diluted share for the second quarter, excluding $24 million of merger related costs and other special charges. Including these special items, our net income was $233 million or $1.46 per share. These results were largely driven by improvement in the revenue environment. Business traffic is coming back, though slowly. Leisure demand has been strong and we expect it will remain so throughout the remainder of the summer. This demand strength, together with the capacity reductions over the last couple of years have helped us to manage yields up. Jim has more detail to share with you in a moment, but I think you will agree that the direction of revenue streams is encouraging. We have also been growing our ancillary revenue streams, our customers are taking advantage of the additional options we have begun to offer such as day of departure upgrades and premium seating. Together, these two initiatives are currently generating over $200,000 per day in additional revenue. On the operation side, we maintained our excellent completion rate by achieving the systemwide mainline segment completion factor of 99.3% for the quarter despite cancellations caused by the Icelandic volcano. We achieved a mainline domestic on-time performance of 80% or greater in all three of the months during the quarter and my co-workers earned $6 million in cash incentives for that performance. So, it’s too early to tell what the fall trends will be like,…

Thanks Jeff, I join Jeff in thanking our co-workers for running a great operation and delivering excellent customer service. They have also done a great job staying focused on maximizing revenue opportunity, including continuing to pull our participation in Star Alliance. In addition to expanding our JV with United, Lufthansa and Air Canada, we have been busy adding codeshare flights with our other Star partners. Since April, we have implemented codeshare relationships with Air New Zealand, SAS, and TAM of Brazil. And plan to implement codesharing with both Brussels Airlines by the end of July. In addition, we have completed agreements with Aegean of Greece and Spanair of Spain. And we will begin codesharing with them upon receipt of government approval. Moving onto our second quarter revenue results. Our mainline RASM was up 18.8% due primarily to strength in mainline yields, which were up 16.3% year-over-year. We also continue to run strong load factors, setting a second quarter mainline load factor record of 85%, up 1.8 points year-over-year. During the quarter, our mainline passenger RASM, on a length of haul-adjusted basis outperformed the industry average. In the second quarter, our RASM outperformed the industry by 9.8 points. So again congratulations to our team on the job well done. Regional RASM for the second quarter was up 23.8% year-over-year due to stronger yield, which was up 19.9% year-over-year and stronger load factor which was up 2.5 points. We like the trends we are seeing, but continue to believe this will be a long, slow recovery. We have seen a continued sequential improvement in high yield passengers since the beginning of the year, but their numbers were still down about 20% in June 2010 compared to June 2008 and revenue from high-yield passengers was down about 10% in June 2010 compared to…

Thanks Jim. I want to begin by thanking the entire Continental team for all their contributions to a good quarter. Our team did a great job delivering strong cost performance while running a solid operation. Our second quarter mainline CASM holding fuel rate constant and excluding special item was up 2.2% year-over-year. Revenue related costs such as commissions and reservations and sales expense were the primary drivers of the increase year-over-year. We also made an accrual for profit sharing based on our year-to-date pretax income. CASM came in slightly lower than expected primarily due to a security fee refund from the TSA. In the second half of the year, we expect to see some pressure on CASM, again due to high revenue related expenses as well as increased variable compensation tied to profitability. We also expect increased expenses related to a higher level of frequent flyer reward activity as our one pass members take advantage of our expanded Star network. For the full-year 2010, excluding special items and holding fuel rate constant, we expect both our consolidated and mainline CASM to be at 2.5% to 3.5% year-over-year. We continue to work to improve our cost structure and efficiencies across all areas of the operation. Our EBITDAR margin excluding special items was 19%, our best performance for the second quarter since 2003. Turning to fuel, our second quarter consolidated fuel price including taxes and hedge impact was $2.26 per gallon. Given the current forward curve, we estimate that including taxes and hedge impact, our third quarter and full-year consolidated fuel price will be $2.21 per gallon. We’ve hedged about 50% of our remaining 2010 fuel needs and about 12.5% of the first half of 2011 using a mix of swaps, collars and call options. Further detail of our current hedge position…

Thanks, Jim and Zane. We are pleased with our second quarter results and the demand trends we are currently seeing give us the reason to be optimistic about the outlook. We are committed to focusing on our day-to-day business, while our dedicated team handles merger integration matters. Our merger will result in many changes. However, our focus on our culture, our people, our customers and our performance won’t to be changing. I look forward to leading the team that brings together the strengths of each company and creates the platform for achieving and sustaining profitability. With that I will turn the call back over to DeAnne to begin our Q&A.

Thank you Jeff, Jim and Zane. With that we are ready to begin our question-and-answer session for the analysts, followed by the question-and-answer session for the media. John if you could please review the Q&A process, we are ready to begin.

Thank you we will now begin the question-and-answer Session. (Operator Instructions) and our first question comes from Bill Greene from Morgan Stanley, please go ahead.

Jeff if we look at Continental as a standalone, historically you have grown a bit faster on capacity than the industry and your comments earlier in the prepared remarks suggest as you think about being a combined entity with United, that’s changing a bit. So is it fair to say that a right characterization that United as a combined entity with Continental will sort of lead the industry at capacity discipline, is that the way you are thinking about it?

No, I am not saying that Bill, what I am saying is that we at Continental are very focused on returning to profitability and sustaining it and in our merger with United that is our focus as well. We will have the capacity that we think is appropriate to make sure that we maximize our profitability and we will also allocate our capacity appropriately to markets where we are making money and we will be thoughtful about capacity in markets where we are not making them.

As a separate question, we talked with United on their call about sort of where they think they are on the ancillary game, they said effectively there is a lot of upside left. I have often thought Continental is taking more of a wait-and-see approach on some of these items and perhaps been a little bit less aggressive. When you think about even Continental as standalone, sort of I’d kind of ask you where do you think you are in the game, but equally important how do you think about the net impact from this unbundling because obviously you guys have taken the approach in some senses where the fare is actually where you are going to capture that by keeping things in. But you’ve have slowly begun to move away from that. So, how does that sort of balance out and then when you combine it, is it a big opportunity that’s not yet identified?

Bill, I think ancillary revenue is a significant opportunity for Continental, and I think that United has done a very good job. There are many issues related to rolling out our ancillary revenue products. There are IT issues, there are global distribution system issues, there are timing issues in terms of where it is in the chain of purchase, whether it’s a prepurchase or day of departure or post purchase. So there are many opportunities and I think we are beginning to explore many of those opportunities and we’ll announce them as they come out, but I think that there are significant benefits to ancillary revenues. I think there will be significant future benefits and I think ancillary revenues will be a growing revenue stream for Continental and I believe will be a growing revenue stream for the combined carrier as well.

Our next question comes from Kevin Crissey from UBS.

Jim, maybe you could comment about your July RASM number, looks like a pretty good number, I guess, compared to some that we've heard. Was there any change in Latin America that would get you to that number?

Our guidance is really just the consolidate mainline, so I wouldn’t comment on July by entity at all. But if you look at the second quarter that we reported, clearly for us particularly in the month of May HN1N1 last year had an effect, we were an industry leader in pulling capacity out. Quite frankly we are obviously large in Mexico where a lot of HN1N1 sit. So really they would clearly impact in terms of our RASM number as kind of moved to the quarterly in the second quarter, but for July, my comments are on the 21% on mainline consolidated.

And Jim, maybe you could comment on your thoughts on Google's attempted acquisition of ITA?

We are actually an early adopter of the ITA software and have a really good relationship and a strong business partnership with ITA. They have a really good shopping solution, that we use on continental.com and it’s worked very well for us, as we have seen some terrific penetration on continental.com in terms of tickets and the growth in terms of our percent of revenue that was falling on continental.com and that shopping solution is a low fare search engine that has served us well. That being said, there are alternatives to that shopping solution in the market place, both internally and externally. So to your question as it relates specifically, we are going to watch the business plan at Google and ITA has been a great partner, but clearly way too early for us to comment on that, but knowing that there are alternatives, both internal external to that shopping solution.

But I think you'll have the opportunity to register some sort of complaint as would others who use the software, I imagine, similar to what you're getting with the merger, you'd be able to do something similar with Google. Does Continental have a position on whether you would file a complaint?

We are not going to comment on that.

Our next question comes from Helane Becker from Dahlman Rose.

Two things, one, there were some news reports this morning out of the EU that they're prepared to approve the merger between you and United. Have you seen those, have they given you any indication that they're going to respond to you within the next week or so?

I am not aware of that report sitting here at this point in time. I will tell you that it wouldn’t surprise me because this is a very pro-competitive transaction, so that’s unsurprising to me.

And then the second question, just with respect to leisure demand versus business demand, last year leisure was very strong and business was not and this year you're saying you're seeing the increases in premium. Are you seeing any signs that leisure is turning down?

Obviously with the summer period, seasonally strong demand, the market place has pricing that’s stronger than last year on the leisure fare with some of the surcharges in the industry. So we are seeing strong demand on the leisure side. We talk about the next six weeks being booked on domestically 1 to 2 points. That again is a sign, the booking curve relatively year-over-year has shifted closer in for revenue management to take in opportunities with that. I would also kind of add to that, that once again in the earnings release, it was record load factors both mainline and consolidated. So I think what we are saying is we are seeing really strong leisure demand with yield as well as a continued improvement in business traffic as we have seen it go through the second quarter.

Our next question comes from Jamie Baker from JPMorgan.

It looks like a bit more cost pressure in the second half of the year, particularly when you factor in the cost in the second quarter. I'm curious if you made any material changes in regards to your profit sharing assumptions?

Jamie, what you are seeing there is our updated guidance based on our overall view of what the rest of the year looks like. So as I touched on, you have got revenue-related expenses which would include commissions RASM sales and then obviously along with that we have a number of other expenses that we go up. As our profitability view increases, profit sharing accruals would increase as well and likewise as they come down, they come down as well.

And secondly, for Jim you talk about premium yield trends not being fully recovered yet. I think everybody sort of gets that, but I'm curious whether you believe that's more of a volume issue? Are there simply fewer business travelers out there? Or is there any evidence of increased buydown to lower coach fares, maybe the fences just haven't been fully restored yet? I guess I'm just trying to understand where the core business travel demand has actually changed that much, or whether business travel pricing might be, what's still different? And lastly, if you're seeing anything different in terms of yield trends in the markets where you've unveiled the new biz first seat?

Yes, I think if you look at our high yield that we referred, I would say it is a little bit of combination of all the things that you talk about, but specifically it’s more the volume, not being back at the levels and, I mentioned 20% decline in passengers with 10% decline in revenue. So the average yields are actually stronger than that (inaudible) period pre-recession, but the volumes are still growing back which of kind ties. We constantly talk about the slow recovery and those absolute volumes building back. In terms of buyback, we recently again had a corporate advisory with our corporate travel managers in June, pretty consistent that business is coming back slowly, I would say they talk about less restrictions in terms of travel policy and we haven’t heard anything about more restrictions in travel policies from that advisory group.

And in terms of demand trends in the markets where you have unveiled the new product any change there, are you likely to generate a return on the upgrade?

Yes, we are actually having terrific performance where our flat bed seats have gone into the market place. We as of June have scheduled all of New York to London, all of London with a flat bed seat and London performance is doing terrific and so forth. As well as you know we are having strong performance into Asia and we are up to 25 airplanes with the 757 and the 777 with the flat bed seat, the customer reaction has been fantastic to that seat and so yes we are seeing good business traffic because of the seat.

So Jamie, just think how great it will be when we got that flat bed seats on an aircraft like the 787.

I won't hold my breath, having been on a 787 earlier this week, still looks like they got to do a lot of work. But thank you for that. I look forward to trying the new product.

Our next question comes from Hunter Keay from Stifel Nicolaus, please go ahead.

Is this a new announcement of the I guess you're referring four or three 900 ERs. Is that a new announcement? What drove that? Is it maybe merger-related or maybe can I extrapolate some commentary on how you're thinking about demand levels really next year?

That is a new announcement and it’s really just finetuning our mix of narrow bodies and wide bodies. You know just looking at overall, as Jeff said keeping the focus on appropriate capacity.

Those are three aircrafts that we deferred.

Three aircraft, and they were 900 ERs.

We just call them 737.

They are the 737.

Ok got it I appreciate that. And just a quick review, Gerry, what is the financed portion of your aircraft CapEx for the remainder of the year?

We don’t have that specifically broken out.

Our next question comes from Michael Linenberg from Deutsche Bank.

Two questions here. Just I guess for Zane, looking at the pension numbers, it looks like over the last month, the cash contribution for 2010 moved up a bit, and I'm curious what drove that especially since I think we got another little bit of helping from the legislation on the pension front. What's going on there?

We highlighted the minimal obligation that’s not necessarily what we plan on funding and so we funded a little bit more than we needed to through the course of the month that’s the only difference there.

Okay. And then just my second question, and this is to Jim, it was great that you gave us the contribution from your partners, both on a year-over-year and a two-year basis. As you've moved into Star, how much of that reflects maybe a shift in point of sale? Now that you're in Star and you're more heavily involved in this alliance than the prior one, are you having a bit more success in picking up some overseas sales or how should we think about that?

I think that is one way to think about, I will tell you for instance, working with Lufthansa and our placement and working with them on corporate contracts out of Germany is significantly more than what we were doing within the SkyTeam alliance and so forth. So the ability to attract some of that high yield business traffic offshore is one of the benefits that we are seeing given our Star relationship and particularly our JV relationship.

Our next question comes from Gary Chase from Barclays Capital.

Wanted to have one quick clarification, Jim. When you were referring to this $40 million in the negotiation, there's nothing that's been accrued on that, right? It's not something that would reverse, that's all forward-looking, correct?

That’s correct. The portion of the contract hasn’t been signed, so we are not accruing anything for that.

And then could you give us a little bit of color on how domestic versus international profitability looks relative to where it's been in the past? We know it was a wide margin several years ago, but a lot has changed and domestic capacity has been down, revenues recovering internationally, but of course it took a bigger hit last year, so where are we? Is that narrower than it's historically been or is it sort of in a normal place?

I would say that it’s narrower. As I look at the second quarter the thing that you always obviously have to keep in mind is the seasonality of quarters and things like that. So we clearly see the relative strength in international, but I think as it refers clearly to the second quarter, we have seen some of that narrowing.

And then just one last one. Something that seems a little unusual this earnings season is just there's more confidence seemingly in the September outlook than there typically is. Usually you hear people say at this time of year, Lord knows what's going to happen in September and I'm just curious if you agree with that and, if so, what might be driving the confidence that's higher than at least any time I can remember?

Both from the investor update and then obviously with my comments on July our comments are really kind of the six-week help period and so really don’t have a comment on what other folks are saying on September at this point.

And our next question comes from Dan McKenzie from Hudson.

With respect to the merger, which operating certificate are you planning to operate under? United's or your own? And then related to that, what implications would that have with respect to how the airline would be operated post merger?

We haven’t made that decision yet.

Implications, one way or the other, depending once you do make that decision?

There are advantages and disadvantages that are mostly technical under each operating certificate and this is a fairly technical discussion that’s going on currently right now, but I think that in the long run, I don’t think you are going to see material differences in how we operate the businesses as based on whichever operating certificate we got to pick.

At the end of the day, it isn’t that big issue because it’s going to be best practices and a revised certificate with the best of both companies.

Then the second question is really also a house cleaning question here. Regarding the Pacific JV, does the merger need to be completed by a particular date before the JV grant would be lost?

No, the merger and the JV are not related at all. We and the United have applied, we would expect approval of that later this year, but that approval is not related in anyway to whether we merge with United or not merge with United?

Our next question comes from Jim Higgins from Soleil Securities.

Can you comment on thoughts about the impact of the AABA, antitrust JV starting up in the transatlantic? You guys and everyone else really have had a bit of an advantage to them over the past years. Any thoughts on what they're finally getting together mean?

We have been anticipating that. We had every expectation that it would be approved, we have a solid competitive position across the Atlantic. We certainly with our merger with United will provide a vast and very attractive global network and as we have also interlines competition, but we are very comfortable with our position. We are very comfortable going forward, we are very comfortable with AABA.

There was a pretty big negative swing in the non-operating, other non-operating income or expense, it moved to an expense item. Other than the foreign currency charge, anything special going on there?

The foreign currency was the bulk of it. There’s a small amount of hedging effect in this, but that was it. It was $10 million for the quarter.

With that John we are ready to move to the Q&A session for the media.

(Operator Instructions). And we have question from Ted Reed from the TheStreet.com.

My question, we're at the end of the quarterly reports now. It was a pretty sensational quarter. From your position as about to run the biggest airline, is this an industry as you look back on this quarter that's been fixed and capacity restraint has taken out a lot of the historic problems in this industry, and are we in a new era for the airline industry?

Ted, I don’t know that we are in new era. I think that we went through some pretty rough times. The economy is recovering, that’s a good thing. Airlines are focused on profitability, certainly we at Continental and we combined with United will be, we’ll take all the actions that we need to take to normally restore ourselves properly, but to be able to sustain those through the business cycle, that’s our goal and we are going to be very focused on that.

Our next question comes from Doug Cameron from Dow Jones.

You've got six 787s to come next year. You've announced a couple of rates and I know you wouldn't tell me now any other new ones. Can you guide us to whether those aircraft will be split between existing fill in services or there might be some additional new routes to go with the planes?

We have announced a couple of new routes that we will fly 787s on, to Lagos and to Auckland. We're going to use those aircraft, both in new routes and also in existing routes and we can also use them seasonally to routes. So we will use them in various ways depending on how our profits maximize.

I'm looking forward to the Chicago Edinburgh service.

I hope you are.

Some people, and I won't name names, have been a little bit rude about the sort of forging of the United and Continental liveries, logos, et cetera. Is what you see on the merger website what you're going to see on the side of a plane if it all goes through or do you have a design guru or guress who may be perhaps finessing the branding?

I think the branding is just marvelous Doug and we are going to be painting the aircraft promptly. We want a uniform fleet and we will be doing that from the day that we close the merger.

My kids say the United name is too big, so there you go.

Well we may listen to your children Doug,

Our next question comes from Joe Perone from The Star-Ledger.

Can you say what your headcount is expected to be by the fourth quarter?

I don’t think that we typically talk about that

We can tell you though that we had just over 38,700 as for the second quarter. Those are FTEs, those aren’t headcount.

Another question, you talked about the ancillary revenue opportunities. Can you give an example of some of those opportunities and any dollar amount that you can provide us with?

We could, but I am not going to.

At this time I show no questions.

Okay, so it’s no more question, we’ll conclude. Jeff, Jim, Zane and DeAnne, thanks for your participation and thanks to all of you for joining us. Please call corporate communications if you have any further questions and we look forward to talking to you next quarter. Thanks.

Thank you ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.