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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 17, 2008

CONTINENTAL AIRLINES, INC.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE

(State or Other Jurisdiction of Incorporation)

1-10323

74-2099724

(Commission File Number)

(IRS Employer Identification No.)

1600 Smith Street, Dept. HQSEO, Houston, Texas

77002

(Address of Principal Executive Offices)

(Zip Code)

(713) 324-2950

(Registrant's Telephone Number, Including Area Code)

______________________________________

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

(17 CFR 240.14d-2(b))
 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

(17 CFR 240.13e-4(c))

 

Item 2.02. Results of Operations and Financial Condition.

On July 17, 2008, Continental Airlines, Inc. (the "Company") issued a press release announcing its financial results for the second quarter of 2008. The press release contains certain non-GAAP financial information. The reconciliation of such non-GAAP financial information to GAAP financial measures is included in the press release and the schedules thereto. Further, the press release contains statements intended as "forward-looking statements," all of which are subject to the cautionary statement about forward-looking statements set forth therein. The press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

In accordance with SEC Release No. 33-8176, the information contained in such press release shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

 

Item 7.01. Regulation FD Disclosure.

On July 17, 2008, we will provide an update for investors presenting information relating to our financial and operational results for the second quarter of 2008, our outlook for the third quarter and full year 2008, and other information. The update is furnished herewith as Exhibit 99.2 and is incorporated herein by reference.

 

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

 

99.1

Second Quarter Earnings Press Release dated July 17, 2008
 

99.2

Investor Update

 

 

SIGNATURE

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, Continental Airlines, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

CONTINENTAL AIRLINES, INC.

 

 

July 17, 2008

By  /s/ Lori A. Gobillot

 

 

 

      Lori A. Gobillot

 

 

 

Staff Vice President and Assistant General Counsel

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT INDEX

99.1

Second Quarter Earnings Press Release dated July 17, 2008

99.2

Investor Update

 

 

News Release

EXHIBIT 99.1

News Release

Contact: Corporate Communications

Houston: 713.324.5080

Email: corpcomm@coair.com

News archive: continental.com/company/news/ Address: P.O. Box 4607, Houston, TX 77210-4607

 

CONTINENTAL AIRLINES ANNOUNCES SECOND QUARTER LOSS

Record fuel prices hurt results for quarter

HOUSTON, July 17, 2008 - Continental Airlines (NYSE: CAL) today reported a second quarter 2008 net loss of $3 million ($0.03 diluted loss per share). Excluding $22 million of previously announced net after tax special items, Continental recorded a net loss of $25 million ($0.25 diluted loss per share).

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.

"My co-workers are doing a great job working through the significant challenges facing our industry," said Larry Kellner, Continental's chairman and chief executive officer. "We will continue to work together to react to the market and maintain our focus on providing quality service to customers."

In response to these challenges, Continental implemented a number of initiatives in the second quarter of 2008 to maintain its competitive position in the industry and bolster its cash balance including:

Second Quarter Revenue and Capacity

Total revenue for the quarter of $4.0 billion increased 9.0 percent ($334 million) over 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. Passenger revenue grew 7.5 percent ($254 million) compared to the second quarter of last year.

"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."

Consolidated revenue passenger miles (RPMs) for the quarter increased 0.5 percent

year-over-year on a capacity increase of 2.7 percent, resulting in a second quarter consolidated load factor of 81.4 percent, 1.8 points below the second quarter record set in 2007.

Consolidated yield for the quarter increased 7.0 percent year-over-year. Consolidated revenue per available seat mile (RASM) for the quarter increased 4.6 percent year-over-year due to increased yields.

Mainline RPMs in the second quarter of 2008 decreased 0.2 percent compared to the second quarter 2007, on a capacity increase of 2.0 percent. Mainline load factor was 81.7 percent, down 1.8 points year-over-year. Mainline yield increased 6.0 percent over the same period in 2007. As a result, second quarter 2008 mainline RASM was up 3.8 percent over the second quarter of 2007.

Passenger revenue for the second quarter of 2008 and period-to-period comparisons of related statistics by geographic region for the company's mainline operations and regional operations are as follows:


Passenger
Revenue
(in millions)

Percentage Increase (Decrease) in
Second Quarter 2008 vs. Second Quarter 2007

Passenger
Revenue 


RASM


ASMs
         

Domestic

$1,504

  

2.1 %

  

5.2 %

  

(2.9)%

  

Trans-Atlantic

805

  

12.4 %

  

(1.3)%

  

14.0 %

  

Latin America

435

  

11.4 %

  

6.3 %

  

4.8 %

  

Pacific

240

  

0.0 %

  

7.4 %

  

(6.9)%

  

Total Mainline

$2,984

  

5.8 %

  

3.8 %

  

2.0 %

  
                 

Regional

$   666

  

15.6 %

  

6.4 %

  

8.6 %

  
                 

Consolidated

$3,650

  

7.5 %

  

4.6 %

  

2.7 %

  


Second Quarter Operational Accomplishments

During the quarter, Continental recorded a U.S. Department of Transportation (DOT) on-time arrival rate of 73.1 percent and a systemwide mainline segment completion factor of 99.5 percent.

For the fifth straight year, Continental was named the "Best Airline in North America" at the 2008 OAG Airline of the Year Awards.

In conjunction with the Transportation Security Administration (TSA), Continental expanded its paperless boarding pass pilot program, already in place at its Houston hub, to include its New York hub at Newark Liberty International Airport as well as Washington National Airport and Boston's Logan International Airport. The program allows customers to receive boarding passes electronically on their cell phones or PDAs, which are scanned by TSA security officers at the checkpoint and can be used to board Continental's flights, eliminating the need for paper boarding passes.

During the quarter, Continental launched the first-ever nonstop seasonal service between its hub at Cleveland Hopkins International Airport and Charles de Gaulle Airport in Paris, France.

High Fuel Costs Taking a Toll

Continental's mainline cost per available seat mile (CASM) increased 15.1 percent (down 4.8 percent holding fuel rate constant and excluding special charges) in the second quarter compared to the same period last year. The company's average price per mainline gallon of fuel, including fuel taxes, increased 66.2 percent year-over-year.

"We had another quarter of outstanding cost control excluding the impact of fuel," said Jeff Misner, Continental's executive vice president and chief financial officer. "The entire team continues to impress me with their ability to find new ways to do things better and more efficiently, helping us mitigate rising fuel costs."

Record-high jet fuel prices are adversely affecting the company's financial results. In the second quarter of 2008, the price of a barrel of West Texas Intermediate crude oil averaged almost $119 per barrel compared to less than $65 per barrel for the same period last year, with crude oil prices peaking at $140.21 per barrel and Gulf Coast jet fuel peaking at $169.79 per barrel during the quarter. Mainline fuel costs increased 66 percent ($542 million) in the second quarter compared to the second quarter of 2007.

During the quarter, Continental also incurred additional fuel costs of $124 million year-over-year that were included as part of its regional capacity purchase cost. As a result, the total year-over-year impact of higher fuel costs on the company for the second quarter was $666 million, accounting for the company's increase in operating expenses compared to the second quarter of 2007. Continental's annualized fuel costs increase by approximately $43 million for each $1-per-barrel rise in the price of crude oil.

During the quarter, Continental recognized a total of $112 million in fuel hedging gains. Of this total, $79 million of realized gains were included as operating expenses when the underlying fuel hedged was used. The remaining $33 million are unrealized gains which relate to fuel hedges for the third quarter of 2008 and beyond which under accounting rules were required to be recognized in the second quarter. This $33 million of gains, which are included in the company's statement of operations under nonoperating income (expense), were caused by the company's hedge positions in crude and heating oil experiencing a relatively higher increase in value than the jet fuel being hedged.

As of July 16, 2008, Continental had hedged approximately 63 percent of the company's projected consolidated fuel requirements for the third and fourth quarters of 2008, and had hedged approximately 29 percent of its projected consolidated fuel requirements for the first half of 2009.

Other Financial Accomplishments

During the quarter, Continental completed a public offering of 11 million shares of its common stock, raising net proceeds of $162 million, and sold its remaining equity stake in Copa, raising net proceeds of $149 million.

In June 2008, Continental amended its bankcard joint marketing agreement with Chase bank, under which Chase purchases frequent flyer mileage credits to be earned by OnePass members for making purchases using a Continental Airlines credit card issued by Chase. Under the agreement, Continental received a payment of $413 million, of which $235 million related to the advance purchase of frequent flyer mileage credits and the balance of which is in consideration of certain other commitments with respect to the co-branding relationship, including the extension of the term of the agreement until December 31, 2016.

During the second quarter, Continental closed transactions to borrow approximately

$208 million under various debt agreements, secured by aircraft purchase agreements and mainline jet aircraft.  The company received net proceeds of $173 million and expects to receive the remaining borrowings in the fourth quarter of 2008.

Continental ended the second quarter with approximately $3.4 billion in unrestricted cash and short-term investments, excluding all student loan related auction rate securities.

Fleet Changes Improve Efficiency

The company continues to improve fuel efficiency by adding modern, fuel efficient aircraft to its fleet and installing winglets on additional aircraft. During the quarter, the company took delivery of six new Boeing 737-900ER aircraft, which have one of the lowest operating costs in the fleet and allow Continental to serve high demand markets more efficiently. The company also took delivery of four new Boeing 737-800 aircraft in the quarter.

Continental's young, fuel efficient fleet provides a natural hedge against rising jet fuel costs. The carrier is about 35 percent more fuel efficient per mainline revenue passenger mile than it was in 1997.

During the quarter, Continental installed winglets on two of the company's 737-500s and seven 737-900 aircraft, and now has winglets on 244 of its mainline aircraft. All of the company's 737-700s, 800s, 900ERs and 757-200s have winglets, as do select airplanes from Continental's 737-300,

-500 and -900 series fleets. Winglets increase aerodynamic efficiency and decrease drag, reducing fuel consumption and emissions by up to five percent.

In addition, Continental announced it will accelerate the retirement of 67 Boeing 737-300 and 737-500 aircraft from its fleet by the end of 2009, with 27 of these aircraft to be removed from service in September 2008.

Other Matters

Continental contributed $24 million to its defined benefit pension plans during the second quarter of 2008. On July 16, 2008, Continental contributed an additional $18 million for a total of $102 million in contributions to its defined benefit pension plans this year, satisfying the company's required minimum contributions for calendar year 2008. Given current market conditions, the company does not plan to make additional contributions this year.

Continental entered into a new seven-year capacity purchase agreement (CPA) with ExpressJet, effective July 1, 2008. Under the amended CPA, ExpressJet will provide regional jet service for Continental at rates that are lower than rates under its prior agreement and more competitive with those offered by other regional service providers. The amended CPA covers a minimum of 205 regional jets in the first year and adjusts to 190 regional jets thereafter, subject to lease expirations.

In June 2008, Continental entered into a framework agreement with United Airlines to link networks and cooperate extensively on frequent flier programs, lounges, facility utilization, information technology and procurement services worldwide to the benefit of customers. In addition, Continental will apply to join the already established antitrust immunized alliance among United, Lufthansa, Air Canada and certain other members of the Star Alliance, with the goal of entering into international joint ventures with United and other members of the Star Alliance.

Corporate Background

Continental Airlines is the world's fifth largest airline. Continental, together with Continental Express and Continental Connection, has more than 3,000 daily departures throughout the Americas, Europe and Asia, serving 140 domestic and 139 international destinations. More than 550 additional points are served via SkyTeam alliance airlines.  With more than 46,000 employees, Continental has hubs serving New York, Houston, Cleveland and Guam, and together with Continental Express, carries approximately 69 million passengers per year. Continental consistently earns awards and critical acclaim for both its operation and its corporate culture. For more company information, visit continental.com.

Continental Airlines will conduct a regular quarterly telephone briefing today to discuss these results and the company's financial and operating outlook with the financial community

and news media at 9:30 a.m. CT/10:30 a.m. ET. To listen to a live broadcast of this briefing, go to continental.com/About Continental /Investor Relations.

This press release contains 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 from those in the forward-looking statements. For examples of such risks and uncertainties, please see the risk factors set forth in the company's 2007 Form 10-K and its other securities filings, including any amendments thereto, which identify important matters such as the consequences of the company's high leverage, the significant cost of aircraft fuel, its transition to a new global alliance, delays in scheduled aircraft deliveries, its high labor and pension costs, service interruptions at one of its hub airports, disruptions to the operations of its regional operators, disruptions in its computer systems, and industry conditions, including the airline pricing environme nt, industry capacity decisions, industry consolidation, terrorist attacks, regulatory matters, excessive taxation, the availability and cost of insurance, public health threats, an economic downturn in the U.S. and global economies and the seasonal nature of the airline business. The company undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this press release, except as required by applicable law.

-tables attached-












CONTINENTAL AIRLINES, INC. AND SUBSIDIARIES

STATEMENTS OF OPERATIONS

(In millions, except per share data) (Unaudited)
 

Three Months  
Ended June 30,

%
Increase/
(Decrease)

Six Months
 Ended June 30,

%
Increase/
(Decrease)
 

    2008

    2007

     2008

    2007
             

Operating Revenue:

            

Passenger (excluding fees and taxes
of $408, $391, $784 and $737)


$3,650 

  


$3,396 

  


7.5 %

  


$6,873 

  


$6,291 

  


9.3 %

  

Cargo

132 

  

109 

  

21.1 %

  

254 

  

216 

  

17.6 %

  

Other, net

   262 

  

   205 

  

27.8 %

  

   487 

  

    382 

  

27.5 %

  
 

4,044 

  

3,710 

  

9.0 %

  

7,614 

  

6,889 

  

10.5 %

  
                         

Operating Expenses:

                        

Aircraft fuel and related taxes

1,363 

  

821 

  

66.0 %

  

2,411 

  

1,505 

  

60.2 %

  

Wages, salaries and related costs

704 

  

842 

  

(16.4)%

  

1,432 

  

1,568 

  

(8.7)%

  

Regional capacity purchase, net

589 

  

444 

  

32.7 %

  

1,095 

  

873 

  

25.4 %

  

Aircraft rentals

246 

  

248 

  

(0.8)%

  

493 

  

496 

  

(0.6)%

  

Landing fees and other rentals

210 

  

190 

  

10.5 %

  

418 

  

384 

  

8.9 %

  

Distribution costs

194 

  

176 

  

10.2 %

  

375 

  

337 

  

11.3 %

  

Maintenance, materials and repairs

167 

  

169 

  

(1.2)%

  

326 

  

313 

  

4.2 %

  

Depreciation and amortization

108 

  

101 

  

6.9 %

  

215 

  

200 

  

7.5 %

  

Passenger services

107 

  

99 

  

8.1 %

  

203 

  

189 

  

7.4 %

  

Special charges (A)

58 

  

7 

  

NM   

  

50 

  

18 

  

NM   

  

Other

   369 

  

   350 

  

5.4 %

  

   733 

  

   679 

  

8.0 %

  
 

4,115 

  

3,447 

  

19.4 %

  

7,751 

  

6,562 

  

18.1 %

  
                         

Operating Income (Loss)

   (71)

  

  263 

  

NM   

  

 (137)

  

   327 

  

NM   

  
                         

Nonoperating Income (Expense):

                        

Interest expense

(88)

  

(97)

  

(9.3)%

  

(179)

  

(193)

  

(7.3)%

  

Interest capitalized

8 

  

6 

  

33.3 %

  

17 

  

11 

  

54.5 %

  

Interest income

16 

  

41 

  

(61.0)%

  

40 

  

77 

  

(48.1)%

  

Income from other companies

6 

  

5 

  

20.0 %

  

10 

  

10 

  

-     

  

Gain on sale of investments (A)

78 

  

- 

  

NM   

  

78 

  

7 

  

NM   

  

Other, net (B)

      5 

  

    14 

  

(64.3)%

  

        - 

  

     15 

  

(100.0)%

  
 

    25 

  

  (31)

  

NM   

  

    (34)

  

    (73)

  

(53.4)%

  
                         

Income (Loss) before Income Taxes

(46)

  

232 

  

NM   

  

(171)

  

254 

  

NM   

  

Income Tax Benefit (Expense) (C)

     43 

  

     (4)

  

NM   

  

        88 

  

        (4)

  

NM   

  
                         

Net Income (Loss)

$     (3)

  

$   228 

  

NM   

  

$  (83)

  

$  250 

  

NM   

  
 

 

  

 

                  

Earnings (Loss) per Share:

                        

Basic

$(0.03)

  

$ 2.35 

  

NM   

  

$(0.84)

  

$ 2.60 

  

NM  

  

Diluted

$(0.03)

  

$ 2.03 

  

NM   

  

$(0.84)

  

$ 2.26 

  

NM  

  
                         

Shares used for Computation:

                        

Basic

99 

  

97 

  

2.1 %

  

99 

  

96 

  

3.1 %

  

Diluted

 99 

  

 115 

  

(13.9)%

  

99 

  

115 

  

(13.9)%

  
                         
                         
                         
                         
                         
                         
                         
  1. The company recorded special items for the three and six months ended June 30, 2008 and 2007 as follows (in millions):
 

Three Months       
Ended June 30,     

Year Ended
June 30,
 

  2008  

  2007  

  2008  

  2007  
         

Aircraft related charges and gains on sales of aircraft

$    41 

$    - 

$   33 

$   6 

Other costs related to capacity reductions

7 

- 

7 

- 

Pension settlement charges

     - 

7 

     - 

 12 

Other

  10 

    - 

  10 

      - 

    Subtotal special charges

$    58 

$  7 

$   50 

$   18 

Gain on sale of Copa Holdings, S.A.

$    78 

$    - 

$   78 

$     - 

Gain on sale of ExpressJet Holdings, Inc.

    - 

  - 

    - 

  7 

    Gain on sale of investments

$    78 

$   - 

$   78 

$    7 
         

  1. Other, net includes a special loss of $29 million in the three and six months ended June 30, 2008 associated with a write-down of student loan-related auction rate securities. Also included in other, net for the three months ended June 30, 2008 and 2007 and the six months ended June 30, 2008 and 2007 are $33 million, $10 million, $33 million and $11 million, respectively, of gains related to fuel hedge ineffectiveness.
  2. During the three and six months ended June 30, 2008, the company recorded a non-cash income tax credit of $28 million resulting from higher utilization of net operating loss carryforwards than had previously been anticipated.

CONTINENTAL AIRLINES, INC. AND SUBSIDIARIES

STATISTICS

Three Months
Ended June 30,

%
Increase/
(Decrease)

Six Months
 Ended June 30,

%
Increase/
(Decrease)

    2008

    2007

     2008

    2007
             

Mainline Operations:

              

Passengers (thousands)

13,000

13,417 

  

(3.1)%

  

25,196

25,362 

(0.7)%

  

Revenue passenger miles (millions)

22,017

22,065 

  

(0.2)%

  

41,940

41,155 

1.9 %

  

Available seat miles (millions)

26,933

26,415 

  

2.0 %

  

52,211

50,538 

3.3 %

  

Cargo ton miles (millions)

263

253 

  

4.0 %

  

524

507 

3.4 %

  
                   

Passenger load factor:

                  

Mainline

81.7%

83.5%

  

(1.8) pts.

  

80.3%

81.4%

(1.1) pts.

  

Domestic

84.7%

85.9%

  

(1.2) pts.

  

83.4%

83.6%

(0.2) pts.

  

International

78.8%

81.0%

  

(2.2) pts.

  

77.3%

79.1%

(1.8) pts.

  
                   

Passenger revenue per available seat mile (cents)

11.08

10.67 

  

3.8 %

  

10.85

10.32 

5.1 %

  

Total revenue per available seat mile (cents)

12.49

11.85 

  

5.4 %

  

12.22

11.51 

6.2 %

  

Average yield per revenue passenger mile (cents)

13.55

12.78 

  

6.0 %

  

13.50

12.67 

6.6 %

  
                   

Cost per available seat mile (CASM) (cents) (A)

12.45 

10.82 

  

15.1 %

  

12.13 

10.69 

13.5 %

  

Special charges per available seat mile (cents)

0.16 

0.03 

  

NM   

  

0.09 

0.04 

NM   

  

CASM, holding fuel rate constant (cents) (A)

10.43 

10.82 

  

(3.6)%

  

10.44 

10.69 

(2.3)%

  
                   

Average price per gallon of fuel, including
fuel taxes (cents)


345.45


207.89 

  


66.2 %

  


313.40


199.10 


57.4 %

  

Fuel gallons consumed (millions)

395

395 

  

-      

  

769

756 

1.7 %

  
                   

Actual aircraft in fleet at end of period

375

368 

  

1.9 %

  

375

368 

1.9 %

  

Average length of aircraft flight (miles)

1,497

1,448 

  

3.4 %

  

1,477

1,433 

3.1 %

  

Average daily utilization of each aircraft (hours)

11:34

11:55 

  

(2.8)%

  

11:23

11:32 

(1.3)%

  
                   

Regional Operations: (B)

                  

Passengers (thousands)

4,962

4,703 

  

5.5 %

  

9,205

8,934 

3.0 %

  

Revenue passenger miles (millions)

2,729

2,558 

  

6.7 %

  

5,085

4,918 

3.4 %

  

Available seat miles (millions)

3,450

3,177 

  

8.6 %

  

6,548

6,303 

3.9 %

  

Passenger load factor

79.1%

80.5%

  

(1.4) pts.

  

77.7%

78.0%

(0.3) pts.

  

Passenger revenue per available seat mile (cents)

19.31

18.14 

  

6.4 %

  

18.47

17.07 

8.2 %

  

Average yield per revenue passenger mile (cents)

24.41

22.53 

  

8.3 %

  

23.78

21.88 

8.7 %

  

Actual aircraft in fleet at end of period (C)

278

257 

  

8.2 %

  

278

257 

8.2 %

  
                   

Consolidated Operations (Mainline and Regional):

                  

Passengers (thousands)

17,962

18,120 

  

(0.9)%

  

34,401

34,296 

0.3 %

  

Revenue passenger miles (millions)

24,746

24,623 

  

0.5 %

  

47,025

46,073 

2.1 %

  

Available seat miles (millions)

30,383

29,592 

  

2.7 %

  

58,759

56,841 

3.4 %

  

Passenger load factor

81.4%

83.2%

  

(1.8) pts.

  

80.0%

81.1%

(1.1) pts.

  

Passenger revenue per available seat mile (cents)

12.01

11.48 

  

4.6 %

  

11.70

11.07 

5.7 %

  

Average yield per revenue passenger mile (cents)

14.75

13.79 

  

7.0 %

  

14.62

13.65 

7.1 %

  

  1. Includes impact of special charges.

  2. Consists of flights operated under capacity purchase agreements with Continental's regional carriers ExpressJet, Colgan, Chautauqua and CommutAir.

  3. Includes aircraft operated by all carriers under capacity purchase agreements but excludes any aircraft operated by ExpressJet outside the scope of the ExpressJet capacity purchase agreement.

CONTINENTAL AIRLINES, INC. AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES

Three Months      
Ended June 30, 2008

Net Income (Loss) (in millions)

  
   

Net income (loss)

$  (3)

  
     

Special items:

   

Special charges, net of tax

37 

  

Gain on sale of investments, net of tax

(49)

  

Write down of student loan-related auction rate securities, net of tax

18 

  

Special tax credit

(28)

  

  Total special items, net of tax

(22)

  
     

Net loss, excluding special items (A)

$(25)

  
 

Three Months      
Ended June 30, 2008

Earnings (Loss) per Share

  
     

Diluted earnings (loss) per share

$(0.03)

  
     

Special items:

   

    Special charges, net of tax

0.37 

  

    Gain on sale of investments, net of tax

(0.49)

  

    Write down of student loan-related auction rate securities, net of tax

0.18 

  

    Special tax credit

(0.28)

  
     

Diluted loss per share, excluding special items (A)

$(0.25)

  

Three Months
Ended June 30,

%      
Increase/
(Decrease)

Six Months     
Ended June 30, 

%      
Increase/
(Decrease)

2008

2007

2008

2007

CASM Mainline Operations (cents)

            
             

Cost per available seat mile (CASM)

$12.45 

$10.82 

15.1 %

$12.13 

$10.69 

13.5 %
             

  Less: Current year fuel cost per available
               seat mile (B)


(5.06)


- - 


NM    


(4.62)


- - 


NM    

  Add: Current year fuel cost at prior year
               fuel price per available seat mile (B)


 3.04 


       - 

NM    


   2.93 


       - 

NM    
             

CASM, holding fuel rate constant (A)

10.43 

10.82 

(3.6)%

10.44 

10.69 

(2.3)%
             

  Less: Special charges

(0.16)

(0.03)

NM    

 (0.06)

(0.04)

NM    
             

CASM, holding fuel rate constant and
  excluding special charges (A)


$10.27 


$10.79 


(4.8)%


$10.38 


$10.65 


(2.5)%

  1. These financial measures provide management and investors the ability to measure and monitor Continental's performance on a consistent basis.

  2. Both the cost and availability of fuel are subject to many economic and political factors and are therefore beyond the company's control.

###

Exhibit 99.2
DeAnne Gabel
Director - Investor Relations

Investor Update

Issue Date: July 17, 2008


This investor update provides information on Continental's second quarter 2008 performance and guidance for the third quarter and full year 2008.

Six Week Outlook
The Company is comfortable with its forward bookings over the next six weeks.  The Company continues to see year-over-year (yoy) yield increases throughout all regions. Consolidated domestic bookings for the next six weeks are running about flat as compared to last year. Mainline Latin bookings are running 4 - 5 points ahead of last year. Transatlantic bookings are running about flat as compared to last year. Pacific bookings are running
4 - 5 points behind last year.

For the third quarter, the Company expects both consolidated and mainline load factors to be about flat yoy.

Targeted Unrestricted Cash and Short Term Investments Balance
The Company ended the second quarter with approximately $3.4 billion in unrestricted cash and short-term investments. This balance excludes all student loan-related auction securities, which are classified as long-term investments.

Continental anticipates ending the third quarter of 2008 with an unrestricted cash and short-term investments balance of between $2.8 and $2.9 billion. This balance excludes all student loan-related auction rate securities, which are classified as long-term investments.

Cargo, Mail, and Other Revenue
Continental estimates Cargo, Mail, and Other Revenue will be between $390 and $400 million for the third quarter 2008.


Available Seat Miles (ASMs)

2008 Estimate
Year-over-Year % Change
 

3rd Qtr.(E)

Full Year (E)

Mainline
Domestic
Latin America
Transatlantic
Pacific
Total Mainline

Regional

Consolidated
Domestic
International
Total Consolidated


(2.8)%
1.0 %
7.2 %
(7.1)%
0.0 %

8.4 %


(0.5)%
2.6 %
0.8 %


(4.1)%
1.5 %
9.6 %
(5.8)%
(0.2)%

3.3 %


(2.7)%
4.1 %
0.2 %


For the full year 2009, Continental expects its mainline capacity to be down between 1% to 3% yoy, with its mainline domestic capacity down 4% to 6% yoy.

Load Factor

2008 Estimate
 

3rd Qtr.(E)

Full Year (E)

Domestic
Latin America
Transatlantic
Pacific
Total Mainline

Regional

Consolidated

84 - 85 %
84 - 85 %
82 - 83 %
80 - 81 %
83 - 84 %

77 - 78 %

82 - 83 %

83 - 84 %
81 - 82 %
77 - 78 %
76 - 77 %
81 - 82 %

77 - 78 %

80 - 81 %


Continental's month-to-date consolidated load factor is updated daily and can be found on continental.com on the Investor Relations page under the About Continental menu.

Second Quarter 2008 Domestic Performance on a hub by hub basis
Continental's second quarter 2008 consolidated domestic capacity at its New York Liberty hub was down 1.3%, with traffic down 5.4%, resulting in a load factor decrease of 3.6 pts. Transcon capacity, which is a subset of New York Liberty capacity, was down 1.4% yoy in the second quarter while traffic was down 3.0%, resulting in a load factor decline of 1.4 pts. Consolidated domestic capacity at its Houston hub was down 2.1% yoy, with traffic down 1.9%, resulting in a load factor increase of 0.2 pt. Consolidated domestic capacity at its Cleveland hub was up 8.0% yoy, with traffic up 5.7%, resulting in a load factor decline of 1.8 pts.

Pension Expense and Contributions
Year-to-date, the Company has contributed $102 million to its defined benefit pension plans, satisfying the Company's minimum required contributions during calendar year 2008. Given the current market conditions, the Company does not plan to make additional contributions this year.

Continental estimates that its non-cash pension expense will be approximately $85 million for the year.

Mainline Operating Statistics

2008 Estimate (cents)
 

3rd Qtr.(E)

Full Year(E)

CASM
  Special Items per ASM (a)
CASM Less Special Items (b)
  Aircraft Fuel & Related Taxes per ASM
CASM Less Special Items and Aircraft Fuel & Related Taxes (c)

13.04 - 13.09
- -
13.04 - 13.09
(5.72)
7.32 - 7.37

12.69 - 12.74
(0.03)
12.66 - 12.71
(5.15)
7.51 - 7.56

Consolidated Operating Statistics

2008 Estimate (cents)

3rd Qtr.(E)

Full Year (E)

CASM
  Special Items per ASM (a)
CASM Less Special Items (b)
  Aircraft Fuel & Related Taxes per ASM
CASM Less Special Items and Aircraft Fuel & Related Taxes (c)

14.07 - 14.12
- -
14.07 - 14.12
(6.13)
7.94 - 7.99

13.74 - 13.79
(0.04)
13.70 - 13.75
(5.52)
8.18 - 8.23

The Company anticipates that it will record additional special charges in the third quarter of 2008 and beyond in conjunction with these capacity reductions for future costs including future lease costs on grounded aircraft as the aircraft are grounded, severance and continuing medical coverage for employees accepting early retirement packages and furloughed employees and other associated costs.  We are not able at this time to estimate the amount and timing of these charges.

Stock Based Compensation
For the second quarter 2008 Continental recorded $2 million in stock option expense and expects to record approximately $4 million and $2 million for the third and fourth quarters of 2008, respectively.

Continental has granted profit based restricted stock unit ("RSU") awards pursuant to its Long-Term Incentive and RSU Program.  Expense for these awards is recognized ratably over the required service period, with changes in the price of the Company's common stock and the payment percentage (which is tied to varying levels of cumulative profit sharing), resulting in a corresponding increase or decrease in "Wages, Salaries, and Related Costs" in the Company's consolidated statements of operations. The closing stock price of $10.11 on June 30, 2008 was used in estimating the expense impact of the awards for the Company's 2008 cost estimates included herein.  Based on the Company's current assumptions regarding payment percentages and the cumulative profit sharing targets to be achieved pursuant to the awards, the Company estimates that a $1 increase or decrease in the price of its common stock from June 30, 2008 will result in an increase or decrease of approximately $3 million in Wages, Salaries, a nd Related Costs attributable to the awards to be recognized in the third quarter 2008. For more information regarding these awards, including performance periods and how the Company accrues for the awards, please see the Company's 2007 Form 10-K.

Fuel Gallons Consumed

2008 Estimate

3rd Qtr.(E)

Full Year (E)

Mainline
Regional

397 Million
82 Million

1,512 Million
  314 Million

Fuel Price per Gallon (including fuel taxes and impact of hedges)

$3.92

$3.50


Fuel Hedges as of July 16, 2008
For the third quarter 2008, Continental has hedged approximately 63% of its projected consolidated fuel requirements as follows:

  • approximately 21% hedged using zero cost collars in heating oil with an average call price of $3.54 per gallon and an average put price of $3.26 per gallon;
  • approximately 33% hedged using zero cost collars in NYMEX crude oil with an average call price of $140.81 per barrel and an average put price of $121.90 per barrel;
  • and, approximately 9% using call options in NYMEX crude oil with an average call price of $142.80 per barrel.

For the fourth quarter 2008, Continental has hedged approximately 65% of its projected consolidated fuel requirements as follows:

  • approximately 29% using zero cost collars in NYMEX crude oil with an average call price of $143.92 per barrel and an average put price of $126.25 per barrel;
  • approximately 32% using call options in NYMEX crude oil with an average call price of $135.00 per barrel;
  • and, approximately 4% using zero cost collars in heating oil with an average call price of $3.96 per gallon and an average put price of $3.63 per gallon.

For the first quarter 2009, Continental has hedged approximately 35% of its projected consolidated fuel requirements as follows:

  • approximately 24% using collars in NYMEX crude oil with an average call price of $150.99 per barrel and an average put price of $113.72 per barrel;
  • and, approximately 11% using call options in NYMEX crude oil with an average call price of $135.00 per barrel.


For the second quarter 2009, Continental has hedged approximately 24% of its projected consolidated fuel requirements using approximately 24% using collars in NYMEX crude oil with an average call price of $151.19 per barrel and an average put price of $114.54 per barrel.

For the un-hedged portion of its consolidated fuel requirements for the second half of 2008, the Company is assuming an average cost per barrel for crude oil based on the forward curve as of July 9, 2008 of $137.23 and $138.08 for the third and fourth quarters, respectively. The company is assuming an average jet fuel crack spread of approximately $24.92 for the full year.

 

Selected Expense Amounts

2008 Estimated Amounts ($Millions)
 

3rd Qtr.(E)

Full Year (E)

Aircraft Rent
Depreciation & Amortization
Net Interest Expense

$245
$113
  $68

$963
$439
$259


Continental Airlines, Inc. Tax Computation
The Company began recognizing income tax expense/benefit in 2008. The Company does not expect to pay significant cash income taxes in 2008 as it has approximately $3.8 billion of net operating loss carryforwards remaining to offset future cash income.

 

2008 Estimate*

  
 

3rd Qtr.(E)

Full Year(E)

Expense/(Benefit)

Taxes on Profit/(Loss)
Permanent Tax Differences
Total Tax

Tax Rate of 36.9%
  $1.6 Million
Sum of the Above

Tax Rate of 36.9%
$6.4 Million
Sum of the Above

Expense/(Benefit)
Expense
Expense/(Benefit)


*The Company can record a total benefit from losses up to the point it fully offsets its net deferred tax liability. At the end of the second quarter 2008, the Company had a net deferred tax liability of $12 million. Permanent tax differences are primarily related to non-deductible per diems, meals and entertainment.

Debt and Capital Leases
Continental's total debt and capital leases balance at the end of second quarter 2008 was $5.8 billion, of which $5.6 billion was debt.

Scheduled debt and capital lease principal payments for the full year 2008 are estimated to be $681 million, with approximately $155 million and $157 million paid in the first and second quarters respectively, and approximately $91 million and $278 million to be paid in the third and fourth quarters of 2008, respectively.

Cash Capital Expenditures (in millions)

2008(E)
($Millions)

Fleet Related
Non-Fleet
Rotable Parts & Capitalized Interest
   Total
Net Purchase Deposits Paid/(Refunded)
Total Cash Capital Expenditures

$187
250
                61
$498
             (71)
$427


EPS Estimated Share Count
Share count estimates for calculating basic and diluted earnings per share at different income levels are as follows:

Third Quarter 2008 (Millions)

Quarterly

Number of Shares

  

Earnings Level

Basic

Diluted

Interest addback (net of profit sharing and income taxes impact)

Over $55
Between $15 - $55
Under $15
Net Loss

110
110
110
110

124
120
111
110

$3
$1
- --
- --


Full Year 2008 (Millions)

Year-to-date

Number of Shares

  

Earnings Level

Basic

Diluted

Interest addback (net of profit sharing and income taxes impact)

Over $207
Between $55 - $207
Under $55
Net Loss

105
105
105
105

119
115
106
105

$12
$5
- --
- --


These share count charts are based upon several assumptions including market stock price and number of shares outstanding. The number of shares used in the actual EPS calculation will likely be different from those set forth above.

(a) Full Year special charges of $50 million ($35 million for mainline operations) include aircraft impairment charges and gains related to sales of aircraft, costs related to capacity reductions, and other special charges.

(b) These financial measures provide management and investors the ability to measure and monitor Continental's performance on a consistent basis.

(c) Cost per available seat mile excluding special items, fuel, and related taxes is computed by multiplying fuel price per gallon, including fuel taxes, by fuel gallons consumed and subtracting that amount from operating expenses excluding special items then dividing by available seat miles. This statistic provides management and investors the ability to measure and monitor Continental's cost performance absent special items and fuel price volatility. Both the cost and availability of fuel are subject to many economic and political factors and therefore are beyond Continental's control.

This update contains 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 from those in the forward-looking statements. For examples of such risks and uncertainties, please see the risk factors set forth in the Company's 2007 Form 10-K and its other securities filings, including any amendments thereto, which identify important matters such as the consequences of the Company's high leverage, the significant cost of aircraft fuel, its transition to a new global alliance, delays in scheduled aircraft deliveries, its high labor and pension costs, service interruptions at one of its hub airports, disruptions to the operations of its regional operators, disruptions in its computer systems, and industry conditions, including the airline pricing environment, industry capacity decisions, industry consolidation, terrorist attacks, regulatory matters, excessive taxation, the availability and cost of insurance, public health threats, an economic downturn in the U.S. and global economies and the seasonal nature of the airline business. The Company undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this update, except as required by applicable law.

Fleet News

Continental Airlines Fleet Plan

Includes Aircraft Operated by the Company or Operated on the
Company's Behalf Under a Capacity Purchase Agreement

July 17, 2008

Net

Net

Net

Total @

Changes

Total @

Changes

Total @

Changes

Total @

6/30/08

2H08E

YE 2008E

2009E

YE 2009E

2010E

YE 2010E

Mainline Jets

777-200ER

20

-

20

2

22

-

22

787-8

-

-

-

-

-

2

2

767-400ER

16

-

16

-

16

-

16

767-200ER

10

-

10

-

10

-

10

757-300

17

-

17

-

17

-

17

757-200

41

-

41

-

41

-

41

737-900ER *

10

10

20

18

38

24

62

737-900

12

-

12

-

12

-

12

737-800*

111

6

117

-

117

-

117

737-700

36

-

36

-

36

-

36

737-300**

47

(24)

23

(23)

-

-

-

737-500**

55

(13)

42

(7)

35

-

35

Total Mainline

375

(21)

354

(10)

344

26

370

Regional

ERJ-145

195

-

195

39

234

(10)

224

ERJ-135***

30

-

30

(30)

-

-

-

CRJ200LR

24

(7)

17

(10)

7

(7)

-

Q400

13

2

15

-

15

-

15

Q200

16

-

16

-

16

-

16

Total Regional

278

(5)

273

(1)

272

(17)

255

Total Count

653

(26)

627

(11)

616

9

625

*Final mix of new 737-800/-900ERs are subject to change

**Final mix and quantity of 737-300 / 737-500 exits subject to change

***ExpressJet has indicated that it anticipates returning all 39 Embraer 50-seat regional jets to Continental.  If ExpressJet does so, Continental currently anticipates adding these 39 aircraft to the Amended ExpressJet CPA and, in turn, withdrawing from that agreement 30 Embraer 37-seat regional jets.  Continental is evaluating its options regarding the thirty 37-seat aircraft expected to be withdrawn from the agreement, which might include permanently grounding them.