Ladies and gentlemen, thank you for standing by. Welcome to Continental Airlines' Second Quarter 2007 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 July 19th, 2007. I would like to turn the call over to Ned Walker, Senior Vice President of Corporate Communications and DeAnne Gabel, Director of Investor Relations. First, Mr. Walker. Sir, you may begin.

Thank you very much, Tatiana, and welcome everyone. Joining us here in Houston today we have Larry Kellner, our Chairman, our Chief Executive Officer, as well as Jeff Smisek, our President and member of the Board of Directors. Also Jeff Misner, our Executive Vice President and Chief Financial Officer, Jim Compton, our Executive Vice President of Marketing, Mark Moran, our Executive Vice President of Operations and Gerry Laderman, our Senior Vice President and Treasurer. The format is similar to what we've done in previous earnings calls. Larry will have a broad overview comments on the industry as well as Continental. Jeff Smisek then will follow-up with capacity and revenue review, followed by Jeff Misner who will look at the cost structure and the balance sheet. We've allocated about 20 minutes for the executive comments followed by 25 minutes for analysts' questions and after that 15 minutes for the media questions. Once again, we ask everyone if they can have one question with a quick follow-up, that way we can accommodate people as much as possible. With that, I'll turn it over to DeAnne.

Thanks, Ned. Earlier today, we issued an update for investors with any information relating to our financial and operational outlook for the third quarter and full year 2007 and other information. This investor update was included in a filing with the SEC and can be found on our website under the Investor Relations section. Today we will be discussing some non-GAAP financial measures, such as net income excluding special items. A reconciliation of the GAAP to non-GAAP financial measures to be discussed can be located on Continental's 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. Our 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 this company's 2006-10-K, and as well as securities filing. With that, I'd like to turn it over to Larry.

Thank you, Ned and DeAnne. Good morning and thanks for joining us. First off, I want to thank my entire team of more than 45,000 co-workers. They're the backbone of our success, and they've done a tremendous job overcoming the daily challenges of running an airline and maintaining consistently reliable operation. Once again, they've pulled together to deliver solid results, achieving the largest second quarter pre-tax profit the company has posted since 2000. I know that the high-low factors we've been running and the continuous weather issues add to the daily challenges, but I admire my co-workers' tireless commitment to customer service and quality. I'm proud to work with the most professional men and women in the business. For the second quarter, Continental reported net income of $235 million, or profit of $2.10 per diluted share excluding special items, which is a 13% improvement over the same period last year. Including special charges, we reported a net income of $228 million, or a profit of $2.03 per diluted share for the quarter. As a result of our financial performance, I'm pleased to say that through June 30th, we've accrued $92 million for profit-sharing this year, which is a $32 million improvement over the same six month period last year. The actual amount of profit-sharing to be distributed to co-workers next February depends on the company's full year 2007 financial results. But our goal is to stand at even bigger profit-sharing checks than we did this past February. My co-workers also earn $10 million in cash incentives during the quarter for finishing first in on-time monthly performance among the major network carriers in June and for finishing in the top three major network carriers in both April and May. Once again, we've shown when we work together, we win together. In…

Thanks, Larry. I join Larry in thanking the entire Continental team for doing a great job this quarter. During the past three months we faced many challenges across our system, as summer storms caused delays and record heat made it tough to work on the ramp and in some of our shops. But the team did a great job maintaining the integrity of our operations and providing the high quality of service our customers expect. Thanks to all my co-workers for the superb job they do everyday. The tough weather hurt our second quarter on-time performance however, I'm proud of our team for delivering a systemwide mainline segment completion factor of 99.4% during the quarter despite the bad weather. We know that while customers don't like to be late, they like it even less if we cancel and they're unable to get to their desired destination. So kudos to our entire team for being committed to getting the job done and getting our customers where they want to go. During the quarter we once again achieved good top-line growth with passenger revenue increasing 5.2% to $3.4 billion. As a result of record load factors and increased international yields, consolidated passenger revenue per available seat mile for the quarter increased to 0.5% year-over-year despite pressure on domestic yields and our reduction in regional flying. In the second quarter, both domestic and international demand were strong, and we achieved a new record for second quarter consolidated load factor. Although we saw good mainline RASM results in June, we're hesitant about celebrating a domestic recovery quite yet, as we continue to see yield pressures in the domestic region. Although there's been some recent domestic capacity reductions announced, we estimate that low cost carriers will put more than 25 additional aircraft in the domestic…

Thanks, Jeff, and again thanks to all of you for joining us this morning. Well despite all of our weather and ATC operational challenges, we're pretty pleased with our second quarter results. Revenue came in a bit stronger than we initially expected, and we continue to work the cost side of the ledger. I'd like to also join Larry and Jeff in saying thanks to all of our employees for a job well done. As DeAnne mentioned, because we thought it would be helpful to our investor community, we did file our investor update this morning which we used to file after the call. The update contains our third quarter full year '07 guidance, so I won't repeat a lot of the details in my comments. So on the cost side, on a year-over-year basis, the increase in same quarter costs was primarily attributable to increased flying, higher maintenance costs and increase in profit-sharing and other variable compensation. Our second quarter mainline costs per available seat mile, is CASM, on a GAAP basis, increased $0.09 on 1% year-over-year. Excluding special items and holding fuel rate constant, mainline CASM was up 1.5% year-over-year, which was a little better than our guidance. Looking ahead to the third quarter, we expect our mainline CASM, again including special items and holding fuel rate constant, to be up about 3% year-over-year. As I mentioned last quarter, throughout 2007, we'll continue to see pressure on the maintenance line as our fleet ages and a larger number of heavy checks are needed. We also have some program escalations in our aircraft maintenance contracts but we are working on a couple of initiatives to offset some of these increases and hope to have some of those initiatives in place by year end. We'll also see some increase in…

Thank you, Jeff and Jeff. We're pleased with the results of this quarter but remain focused on the road ahead. There will always be challenges but I have confidence that my co-workers will make the best of every situation. We have the right people, the right product, the right fleet and the right facilities to meet the challenges ahead as we work together to continue to deliver the high quality products our customers expect. Once again I want to say thank you to my co-workers for the contributions they make to the business everyday. Together we look forward to delivering more good results in the future. With that, I'll turn the call back over to DeAnne to begin our Q&A. DeAnne Gabel: Thank you, gentlemen. With that, we'll begin the question-and-answer session for the analysts, followed by the Q&A for the media. Tatiana, if you could please review the Q&A process, we'll be ready to begin.

(Operator Instructions) Our first question come from William Greene from Morgan Stanley, please go ahead.

Yeah. Hi. With regard to the growth rate cut in capacity for next year, how much flexibility do you have to move it down and the five other aircraft that you might sell, is that already included in this or might that be additional?

This is Larry. We have estimated, yeah, that those five aircraft are out in our fleet plan to the 3% to 4% expected growth rate assumes that the 15 737-500s exit between the end of this year and through almost to next year.

And do you have flexibility to drive it lower if you needed to or is that of all we can do at this point?

No. We've cranked since 9/11 the utilization of the fleet quite a bit. And clearly our plans based on a pretty strong utilization of the fleet that we have. We always have some flexibility if the market conditions change to take that utilization down.

Okay. And how should we think about the balance sheet impact of those sales? Or is it going to affect the cash balances very significantly?

We believe that it will be slight positive cash.

Okay. But they're mostly all leveraged so there is no doubt.

There is data on all the aircraft. We believe it will be a slight positive.

Okay. And then just lastly were there any one-time items here in the quarter related to weather or the northwest issues or what not that you can talk about or add color on that might have affected either RASM or some of the expense categories?

It’s hard to tell. June came out a little better than I thought it would at the beginning of the month and as far to tell how much of that Dallas had a tremendous amount of weather. But as we are having this call we’ve got the rain beating against the window here in Houston. We’ve had our share of weather here in Huston. Also it’s hard to net it out and say put a number on it. But clearly June performed pretty well for us.

Okay. So we'll just sort of have to go with that it would –

Yeah. It’s just part of our…

Is it a material or you can't net it out?

Yeah. Within the net of our weather negatives were offset by anything we picked up from anybody else's weather or operational problems or it was just a stronger market. In my sense looking at July it was just a little stronger market.

Okay. Thanks for your help.

Thank you. Our next question comes from Robert Barry from Goldman-Sachs. Please go ahead.

Hi, guys, good morning.

Good morning.

I wanted to follow-up on the growth question and I was wondering if you could just elaborate a little bit more on your logic for doing it, and to what extent it has to do with your a stance in the past about not feeding any market share to certain competitors?

It doesn't tie our market share comments. We have no change in our willingness to see market share, for instance, in the New York market. What it does tie to is the fact that there is a good market on a global basis for small narrow bodies 737-500, once regional jets came in had been our toughest fleet type and so we had the opportunity to reduce that fleet by the 15 we own. We started looking into marketplace for a chance to do that. And this just reflects both that fleet type and where the market is for fleet and the chance that we could do that. We've got 64 new 737s on order new-gens from Boeing and so clearly this is a case where as you look at over the next three years we clearly have a number of aircraft coming from Boeing and we had some flexibility. We also plan to retire 300s. The reason we have got the 500s in the longer fleet plan is because the other 48 500s on lease from 2012 to 2015. And so we know that’s the fleet type will be operating on a long-term basis. But we are gradually moving out of the classics to the more fuel efficient new-gens and this is just a chance to take advantage of market opportunities.

That is interesting. So I mean, I assume that there is also some embedded assessment of the '08 expected supply and demand dynamic in the market or is it really just about an opportunity that to sell the aircraft?

Well, it is a combination of the two. Clearly if fuel was $20 a barrel and domestic market was extremely strong you wouldn't be looking at those options. So I mean if you got to look at it in total.

Sure. And then…

And small 737 is the least fuel efficient than the 737s we operate on a per-seat basis.

Okay. And then just a question on the international outlook, clearly it continues to be very strong. I'm wondering what your thinking about it going forward, and if we should start to be concerned at all about tough comp. I know there is some enthusiasm about comps getting easier on the domestic front. On the fleet side, should we be getting concerned about difficult comps on the international front?

Robert, this is Jim. Obviously, this thing we saw strong performance across all the entities and international side and bookings going forward also are consistent with what we saw in the second quarter. So, at least this is kind as far as you can see, which is, what we kind of talk about going forward, and in the third quarter we don't see any really changes. We still see good strength in the internal across all the entities.

Okay. Great. Thank you.

Thank you, our next question comes from Ray Neidl from Caylon Securities, go ahead.

Yeah. With the Boeing 737-500s you are not going to be taking a penalty by reducing the size of that fleet and operating only 48 are you? In other words with crew training, spare parts, they're interchangeable with the other 737 types, is that correct?

Well the classics are quite a bit different than the new-gens, but we have still got 48 300s which we'll also be facing out over time. But we look at the size of our classic fleet which is still over 100, we have a lot of flexibility there, as we work that down. We'll still have a decent; we'll still have 48 of them as we get to 2012 in the classic group. So we don't think it is a big impact.

Okay. Great. And then regarding the fleet on the small-end, what's the current status, it sounds like you are pretty well complete with your regional jet contracts, but I'm just wondering what the status is of ExpressJet, to your service, to your costs, are you satisfied with them? And if you are still contemplating maybe at some point using larger RJs.

Well, Ray, couple of things. One, ExpressJet has always done a good for us operationally. Clearly we continue to work the cost side there. And if you look at the larger RJs our scope clause and our main line pilot contract is that 50 seats, we don't think we can make the economics work on a 70-seater flown at the main line. And so we don't have any plans in the 70-seat jet area at the moment.

Okay. Great. Thank you.

Thank you, our next question comes from Mike Linenberg from Merrill Lynch. Please go ahead.

Yeah. Good morning all. I got two questions, my first one related to follow-up Ray with ExpressJet. Can you give us a timing on the outcome of this binding arbitration? When do we expect to hear something, some part A to that? And part B would be how the transition has gone with Chautauqua, how you view that relationship, how that is looking. And then I have a follow-up.

Sure, Mike. On ExpressJet, I think our best guess is that you'll hear about the end of the month to early in August on that arbitration. And with Chautauqua, the June performance, they had a controllable completion factor in June, so that excludes the weather and ATC if you start other completion factor but if you look at what they can control maintenance (inaudible), and 99-3. So clearly we’ve got into the transition with stock where they're doing a very good job for us. We're pleased with how that is working. Mike Linenberg - Merrill Lynch: Okay. Good. And then just my second question I'm sure, you perused the joint application for antitrust immunity between northwest, delta, KLM and air France, basically it looks like they want to operate as one across the north Atlantic. Do you, given sort of your role in sky team? Do you view that as a threat?

I think we look at it competitively the right thing for us with our hub at Newark Liberty is to keep growing that hub. We have clearly got 787 coming in and which is going to make a big transition for us internationally. Our sky team is very important to us as it gives us a lot of reach we wouldn't otherwise have. Right now, we think we're headed in the right direction on the international front. Mike Linenberg - Merrill Lynch: Okay. Very good and nice quarter.

Thank you, our next question comes from Dan McKenzie from Credit Suisse. Please go ahead.

Hi. Good morning. Two questions here. You touched on fleet flexibility for 2008, but fuel at $75 and we haven't even had a hurricane yet. I am just wondering how you’re thinking about the risk of fuel going significantly higher. We have some prognostic occasions with fuel it could even go north of 90, how are you thinking about that risk and how could you respond there I guess how quickly could you respond?

First of all, fuel is already above 90 because when we're buying jet fuel, not crude. We've approached fuel several ways. One, obviously, our investment in our modern and fuel-efficient fleet is incredibly important. We have got the most fuel efficient fleet among the majors and we continue to invest in new aircraft and obviously all the ancillary operations that we do, our operational methods we do to minimize our fuel burn. We also hedge the fuel component of tickets we’ve already sold and we rely on the market, frankly to price fuel correctly in the future. We can quibble as to whether the market is doing a good job pricing of fuel right now, and I don't think we've done as good job as in industry this year as we did last year, but what we're relying, frankly, on, you know, carry that (inaudible) rationing as fuel prices increase. We’ve done I think a superb job having a fuel-efficient fleet and continuing to renew that fleet, and our employees are also doing a great job in the operations everyday to conserve fuel. And so I think we're in a quite a good position compared to our competitors, but nobody likes really, really high fuel prices, but it is something we learned to live with.

Yes. Sure. And just for clarification, I was talking WTI north of 90, not necessarily jet fuel.

You tell what the (inaudible) fuel prices, but the fact is where it -- fuel is higher than we could of imagine it being a year or two ago and yet we turned in the largest second quarter profit that we had since the year 2000, so I think we're handling it pretty well, frankly.

Sure. Second question, you know, relates to the FAA reauthorization bill. I'm just wondering, what you're seeing there and, how far away are we from some improved air traffic control efficiency and what are you guys working on and how would you sort of quantify potential savings from many efficiency improvements and of course the timing of those?

Sure. Dan, this is Larry. The professional air traffic controllers of the FAA are doing the best they can with the tools they got and we need to get them new tools and that's going to take several years, not several months. And we have to figure out how to pay for those tools. And I think step one is figuring out how to pay for those tools and inside what those tools are going to be so, we can get on with the process of getting the controllers and the tools they need. I think the challenge we got is we can't continue to have a commercial airlines and the passengers paying for over 90% of the system and using about two-thirds of it. And as private jet aviation and distinguish private jet. There is a lot of confusion out there. Piston-powered aviation isn’t using the air traffic control system. This isn't about prop and piston flying. This is about jet flying. But very light jets that are coming out like a (inaudible) aviation we got have a further impact on the air traffic control system and we've got to figure out a process for how we're going to pay for these new tools and we need to make sure the people who are paying for the tools get first priority on the system. So, I think we have a lot of work to do. I think congress is making progress, but we need not to put this off for another year or two because even after we decide how we are going to do it, we have then got to figure out what tools we're going to use and then get into the implementation. So we're years from getting a better fix to a system that it’s already add its capacity. And, again, I think the controllers are doing the best they can with the tools they got. But we need to move forward. Hard to estimate cost savings but they will be significant and we just need to see exactly how the system works out how rolls it.

Okay. Thanks a lot.

Thank you. Our next question comes from Frank Boroch from Bear Stearns. Please go ahead.

Hi. Good morning. My first question is, I wanted to see if you could talk about how the trends can performed in the second quarter and your outlook for the current period.

Yes, frank, this is Jim. Transcon perform within the domestic continued to be strong for us implemented horizon point of view and load factor point of view. And you know one of the stronger domestic entities for us.

Okay. Great. That’s helpful. I look historically, it seems as though it Continental moving into the third quarter relative to the second quarter, unit revenue tends to increase about half of a percentage point. Is there anything -- this year that suggested that that -- maybe is different with capacity changes or last year we had the security scare and what not that somehow this year might be different than the historical sequential average of RASM up about half point over the second quarter.

I'm not going to comment on the seasonality of it. I just refer to our comments and the investor updates overall versus that trying to speculate on the seasonality. But you have that seasonality, and I kind of go with that.

Okay. Thanks.

Thank you, our next question comes from Bill Mastoris from Bank of New York. Please go ahead.

Thank you. With regard to the 10-737-500s are any of those in your double ETCs and if they are, and if any of the other five potential sales are in the double ETCs, would it be correct in saying that you will continue to be the obligor and on even all the potential sales of those 737-500s. Gerry Laderman: This is Gerry, if you look at the whole group of 15, some of those are in some of those double ETCs that I am sure you're familiar with and to the extent that we sell aircraft any of the aircraft that currently have debt on them, we would pay off the debt before we sell the aircraft.

Okay. And okay. That's pretty much what I would expect. I didn't know whether you were going to continue to be the obligor, but obviously you answered that. But my second question this has to do with the applications or start-up I should say of Virgin America. You were one of the major objectors on to their application and normally you wouldn't do that unless you would consider them at least a potential future threat. Maybe you could comment on what type of impact you might think they would have on Transcon yields going forward.

Yes, Bill, this is Larry. Once they amended their application we didn't oppose it. We had only opposed before an ownership elements and that was not -- I mean, whether its sky bus or if you look at last couple years jet blue or several other airlines that have started, we know there will be new entrants into the market and that has been a continual thing since 1978. So I would just clarify what we opposed in the Virgin America application was for ownership aspects and the structure, and not. Truly from competitive standpoint truly they are going to compete with us just like every other start-up in the U.S. does. I saw this morning where they announced the routes, clearly they are going to put a significant amount of capacity in the Transcon. If you look at the number of planes they have and where they're going, primarily San Francisco and L.A. to JFK and Dulles and they're also going to do some north south flying on the west coast between San Francisco and L.A and San Francisco and Vegas that won’t have impact on us all the capacity in the Transcon which has some impact on us though it’s a big market and they are not flying the exact cities pairs we’re flying that they're going to JFK and not to Newark.

Okay. Thank you.

Thank you. Our next question comes from Gary Chase from Lehman Brothers. Please go ahead.

Good morning, guys. Just a couple quick questions for Jim. Obviously, I think through some of the comments you’ve made on the call, you know, obviously noting continued softness in the domestic environment, but I'm just curious, we shouldn't take any other comments you made to mean I think you are getting incrementally worse. Can we say that the things are getting incrementally a bit better? We do have capacity reduction as we move into the second half and as you said things did look pretty good in June. So is there some inflection point that we should be thinking about as we move into the second half?

Gerry it is Jim. You know, my ability to see far out is always obviously difficult in this business and so forth so that as Larry mentioned we are pleased with our June revenue performance and have seen some of that continuing in July so forth. So some of what I talked about kind of, where are we at an inflection point? But we’re clearly able to kind of – do better in the summer high demand periods and so forth. And so, we've been able to do some things Jeff mentioned in his comments, a $7 fuel surcharge each way in the domestic business. That is a result of studying the high demand relative capacity and so forth. And obviously those things begin to change in the fall. So, what we see is a continued weak pricing environment in the domestic. A number of sales, even during the summer period, that, again with -- at a micro basis some we match, some we don't. And as you get out to the fall you don't have that offset of the high demand period and constraint capacity during the summer as you head into the fall.

Okay. And I guess, as I remember, the latter part of last year, I mean, I think, at least by memory, people were affected by the liquid ban and terror alert in the international markets, so I mean is that wrong perception that you kind of went through that internationally without any difficulty in contrasted domestic? Because I would be thinking that the international comps get a little bit easier as you move into the second half as well.

I think clearly for us, seems like you always have to be a historian in this business. In the Tel Aviv market where year-over-year some of the things that were happening in Tel Aviv last year and then as you mentioned in August with the London situation, so clearly there was some fall-off in traffic in associated revenue in that, that will have year-over-year based on kind of the way we see bookings right now that is positive.

Okay. Thanks, guys.

Thank you, Gary.

We have no further analyst questions at this time.