Ned Walker – Senior Vice President - Worldwide Corporate Communications DeAnne Gabel – Director of Investor Relations Lawrence W. Kellner – Chairman of the Board, Chief Executive Officer Jeffery A.

Smisek – President, Director Jeff Misner – Executive Vice President & Chief Financial officer Zane Rowe – Chief Financial Officer, Executive Vice President Jim Compton – Executive Vice President of Marketing Mark Moran – Executive Vice President of Operations Jerry Laderman – Senior Vice President Finance & Treasurer

William Greene - Morgan Stanley Ray Neidle – Calyon Securities Jamie Baker – J.P. Morgan Mike Linenberg – Merrill Lynch Justine Fischer – Goldman Sachs Gary Chase – Lehman Brothers

Joining us here in Houston we have Larry Kellner, Continental’s Chairman and Chief Executive Officer, Jeff Smisek our President and a member of the Board of Directors, 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. We also have Zane Rowe our Senior Vice President of Network Strategy and CFO-Elect as well as Jerry Laderman our Senior Vice President of Finance and Treasurer.

I’ll go over the format briefly, the same thing that we’ve done over the last several quarters, Larry will give an industry corporate overview, Jeff Smisek will then review capacity and revenue results, followed by Jeff Misner who will look at Continental’s cost structure and balance sheet. We’ve allocated 20 minutes for the executive comments and then we have a 25-minute window open for the analyst questions and we’ll conclude with a 15-minute window for media questions.

Once again, when we do get to the Q&A portion if you could have one question and a quick follow up we should be able to accommodate everyone. With that I’ll turn it over to DeAnne.

Earlier today we issued an update for investors visiting information relating to our financial and operation outlook for the third quarter and full-year 2008 and other information. This investor update was included in the filing with the SEC and can be found on our web site under the Investor Relations section.

Please note that 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 web site at continental.com under the Investor Relations section.

In addition, our discussion today may contain forward-looking statements that are not limited to historical fact or reflect the company’s current belief, expectations or intentions regarding future events. All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially.

For example of these risks and uncertainties please see the risk factors set forth in the 2007 10K and other Security filings. With that I would like to turn the call over to Larry.

I want to thank my co-workers. They’re the backbone that makes this company great.

We’re going through some very difficult times in the airline business as jet fuel climbs higher and carriers including ourselves have been forced to make difficult decisions such as capacity cuts and co-worker headcount reduction. Yet despite the tough time our team has maintained their focus and delivered clean, safe and reliable air transportation, and they’ve done it with a professional working-together attitude.

So again thank you to all my co-workers. It’s an honor to be on your team.

With that let me recap our second quarter results. For the second quarter 2008 we reported a net loss of $25 million or a loss of $0.25 per diluted share excluding $22 million of previously announced net after-tax special items.

Including those special items we reported a net loss of $3 million or a loss of $0.03 per diluted share for the quarter. On the operational side our team maintained their stellar reputation for completing the mission by delivering a system-wide mainline segment completion factor of 99.5% for the quarter.

Time and time again my co-workers are recognized for their excellence. I’m pleased to say that thanks to them for the fifth consecutive year Continental was named the Best Airline in North America at the 2008 OAG Airline of the Year Awards.

We’re experiencing the worst financial environment for US carriers since 9/11 due to record high fuel prices, the weak dollar and the generally uncertain economic environment. In response to those challenges we’ve implemented a number of initiatives to maintain our competitive position in the industry and bolster our cash position.

During the quarter we announced additional capacity reductions. Although it was a difficult decision for the team to make, it was the right decision.

Over the last year and a half as oil’s continued to climb ever higher we’ve been reducing our growth plans. As you may recall our initial target was to grow mainline 2008 capacity by 5% to 7%.

By the fall of 2007 we’d already pulled the growth down to 3% to 4%. Then as the cost of fuel continued to rise, we further adjusted the schedule down to only 2% to 3% growth.

The first half of 2008 the cost of fuel continued to soar, so along with many other steps we’re taking we announced that we’re significantly cutting our fourth quarter capacity so that for 2008 we now expect full-year mainline capacity to be down slightly as compared to 2007. In connection with our capacity reductions we’ve announced that we’re accelerating the retirement of 67 737-300 and 737-500 aircraft removing the majority of our least fuel-efficient mainline aircraft by the end of 2009.

When times are difficult cash is more important than ever and we raised approximately $900 million of cash through various transactions during the quarter and ended the quarter with $3.4 billion of unrestricted cash. In addition we implemented numerous fuel surcharge and fare increases as well as a $25 fee for a second checked bag for non-Elite customers on certain domestic and Latin America economy class tickets.

The second bag fee has been very effective. In the domestic market we’re seeing about a 60% reduction for second bags checked by affected customers and for Latin it’s about a 35% reduction without any meaningful problems at the TSA checkpoint or onboard with carry ons.

This is very good for us as we save the weight onboard our aircraft as well as the handling and mishandling bag costs. We don’t know if our planned capacity reductions for the fall is appropriate until we get more data indicating what fourth quarter RASM will be, but to date we’re seeing a significant year-over-year increase in average fare for fall bookings.

Another step we took during the quarter to improve our long-term competitive position was to announce our plans to join United Airlines and the Star lines and to cooperate extensively with United, Lithuania, and other members of the Star lines. I’m excited about this opportunity as Star is the most comprehensive airlines alliance in the world and our membership, along with the joint ventures we intend to create, will provide substantial new benefits for our customers.

In addition to broad domestic code sharing that we planned with United we will soon be filing an application with the Department of Transportation requesting approval to join United along with Lithuania, Air Canada, and six other carriers in their already-established anti-trust immunized alliance. As noted in our earlier press release about the alliance we plan to establish a TransAtlantic joint venture in which we will pool revenue with United, Lithuania and Air Canada to compete more effectively with the recently approved joint venture including certain SkyTeam members.

We also plan to form joint ventures with United and other Star lines members in the Latin America and Asia Pacific regions. We’ll keep everyone updated as we make progress with the transition from SkyTeam to Star in the months ahead.

Before I turn the call over to Jeff Smisek to discuss the quarter’s revenue performance and Jeff Misner to discuss the quarter’s cost performance, I want to thank Jeff Misner our Executive Vice President and Chief Financial Officer. This will be Jeff’s last earnings call as he is retiring at the end of next month.

I’ve known and worked with Jeff for over two decades in a couple of companies and he’s served Continental with integrity, candor and professionalism since he joined us here in 1995. I along with the entire management team have been privileged to work with Jeff and want to thank him here publicly today and wish him the very best in his retirement.

I also want to congratulate Zane Rowe who will become our Executive Vice President and CFO on Jeff Misner’s retirement. I do want to point out that it will also help to avoid some confusion as we’ll no longer wonder which Jeff said what.

With that I’ll turn the call over to Jeff and Jeff.

I want to join Larry in thanking my co-workers for keeping their focus on running a clean, safe and reliable operation during these incredibly difficult times for our industry. Our operations have been running smoothly and our entire team is focused on increasing revenues and holding the line on non-fuel related expenses.

For the second quarter we continue to see yield improvement in all regions. Our consolidated yields were up 7% year-over-year.

Our consolidated load factor of 81.4% was down 1.8 points year-over-year on a capacity increase of 2.7% resulting in a consolidated RASM increase of 4.6%. In the second quarter we grew total revenue by 9% or $334 million to just over $4 billion so we continue to have solid revenue results.

Unfortunately, due to the increase in fuel costs our costs grew by more than $600 million in the quarter. Demand in general has continued to hold up well.

However, the softness we began to see in the TransAtlantic sector last quarter continued throughout the second quarter which we believe is mainly attributable to the weak dollar. Yields for this region were up 3.2% year-over-year.

We still had solid passenger revenue results for the region which were up 12.4% year-over-year. However, if the yield performance was softer, then we’d expect it going into the quarter.

We expect to continue to see this pressure on our year-over-year TransAtlantic yield throughout the third quarter although we’ll be dialing down our year-over-year capacity growth in that region. So we expect positive year-over-year RASM growth there.

During the quarter we continued to experience increased competition on our TransPacific routes as both Copa and [Jalin] increased frequencies last quarter. In addition Beijing bookings have not been as strong as we had expected.

We attribute this to a drop-off in the number of leisure travelers related to hotels charging premium room rates in advance of the Olympics as well as a drop-off in leisure and business travelers related to China making it more difficult to obtain both tourist and business visas. All this had a negative impact on TransPacific load factors.

Our overall Pacific load factor, which includes both our Continental Micronesia Pacific routes and our TransPacific routes, was down 2.5 points year-over-year. But yields were up 10.9% year-over-year resulting in a RASM increase of 7.4%.

Advanced bookings for our TransPacific routes look better starting in September and we expect our overall Pacific load factor for the third quarter will be about flat year-over-year. Our Latin region continues to do well with mainline Latin RASM up 6.3% due to both increased yields and higher load factors.

The Latin region did well as some travelers who traditionally travel to Europe for their summer vacation are instead opting to go to Latin America. We’ll also be dialing down our year-over-year capacity growth in Latin America in the third quarter which should improve our RASM performance there.

We also continue to see domestic mainline yield increases in the second quarter but load factor was down 1.2 points which resulted in a year-over-year RASM increase of 5.2%. We’re pulling down our domestic mainline capacity significantly beginning in September and expect that our RASM there will improve significantly for the third quarter.

We’ve seen numerous domestic fare increases attempted by the major carriers although few of them have been matched by low-cost competitors and so they’ve had little practical effect. A problem that our low-cost competitors have is that they’re largely leisure customer base is quite price sensitive so they have trouble raising fares even in the face of high fuel prices.

That of course bleeds over to us with respect to a large number of our domestic routes and our leisure customers but thankfully we also have a large base of business customers. We also had regional yield improvement during the second quarter.

The load factors were down 1.4 points year-over-year resulting in a RASM increase of 6.4% compared to the second quarter of last year. Looking ahead to the third quarter we’re comfortable with the demand outlook for the next six weeks.

We continue to see year-over-year yield increases throughout all regions. Consolidated domestic booked seat factor for the next six weeks is running about flat as compared to last year.

Mainline Latin bookings are running 4 points to 5 points ahead of last year while TransAtlantic bookings are running about flat as compared with last year. Pacific bookings are running four points to five points behind last year but again advanced bookings for our TransPacific routes look better starting in September.

For the full third quarter we expect both our consolidated and mainline load factors to be down about a point year-over-year. As for corporate travel trends our market intelligence shows that most companies are not significantly reducing their air travel budgets.

However, we’ve heard that some companies are asking their companies to book trips further in advance to take advantage of lower price restricted tickets which of course will lead to a drop in the number of close-in and thus higher yielding bookings. We’ve also heard they’re asking their employees to use preferred carriers to take advantage of savings through discounting agreements, to obtain higher level internal approvals for travel, and to book coach versus business class for some of their travels.

This is all pretty typical behavior in a weaker economic condition. And while it’s good news that we aren’t hearing of travel budget decreases for the most part, we also aren’t hearing of many companies increasing their travel budgets to compensate for higher fares.

So the number of trips taken will have to decrease if companies are to stay within their travel budget. As Larry mentioned we don’t have a lot of data about the fourth quarter booking trends in yield yet.

If domestic RASM doesn’t perform as we expect it to for the fourth quarter, we may need to make further capacity reductions and we won’t shy away from doing what we need to do depending of course on what the rest of the industry looks like then. We’ve been focused on building our cash position so we can have the staying power that will be necessary as we go into the seasonally weaker fall and winter seasons.

For the third quarter we expect mainline capacity to be flat compared to the third quarter of 2007 with mainline domestic capacity down 2.8% and mainline international capacity up 2.9%. Our third quarter international growth is mainly driven by the run rate of new markets we started last year and our Heathrow expansion this year.

We expect regional capacity will be up 8.4% driven mostly by our increasing use of fuel efficient Q400 and replacing 19-seat Beechcraft with 37-seat Q200 turboprops flown by our business partners. Due to the significant domestic mainline capacity reductions we announced earlier which begin September 3, we expect our total mainline capacity including international will be down slightly for the full year 2008.

For 2009 we expect our total mainline capacity including international capacity will be down 1% to 3% year-over-year with our mainline domestic capacity expected to be down between 4% and 6%. This of course assumes that we don’t pull additional capacity in response to market conditions.

I want to close by thanking my co-workers for all they’re doing in these tough times. Everyone is working together to make sure that Continental emerges on the other side of these problems as a profitable carrier with great service and great product.

Before I turn the call over to Jeff Misner I want to join Larry in thanking Jeff for all he’s done for Continental. Jeff has been a superb Chief Financial Officer.

He’s a man of solid integrity and excellent judgment. Moreover, he’s been a friend to many of us at Continental and we will miss him very much.

With that I’ll turn the call over to Jeff Misner.

As we discussed given the continued escalation in oil prices we’ll be initially reducing our capacity beginning in September. But reducing capacity is a critical step that’s only part of the story.

For a pull-down to be successful you need to get the associated toss out of the system as well, and we’ve been working very hard doing just that. And we recognize the difficulty that many of these decisions pose and I want to thank the team for their willingness to make those tough decisions, all the while maintaining a working-together can-do kind of attitude.

Our costs ex-fuel came in a little better than our guidance for the quarter mostly attributable to a long-term incentive program which is mark-to-market each month based on changes in our stock price. Excluding the impact of that program our costs came in about $7 million better than our guidance.

Maintenance was a few million better than expected due to the timing of some events. Other rents, landing fees came in a couple million better primarily due to some airport credits.

And depreciation and amortization also came in slightly better than we expected. As DeAnne mentioned we filed our investor update this morning which has our third quarter full-year 2008 guidance.

Since the guidance is posted on our web site I won’t take the time to repeat it all in my comments. As we announced earlier in the quarter we reached a new seven-year capacity purchase agreement with ExpressJet.

We estimate that annual savings resulting from the revised agreement will be approximately $50 million. This is net of the effect of their reduced lease rates related to 30 aircraft ExpressJet will continue to sublease from us and also costs associated with the expected grounding of 30 regional jets returned to us.

Our 2008 cost guidance incorporates the impact of these changes. As I mentioned last quarter we’ll continue to work on eliminating inefficiencies and non-value-added costs from the system.

As we previously discussed we’ve identified many new revenue and cost-savings initiatives and expect to realize about $100 million from these initiatives this year and expect the amount to exceed $200 million annually once fully implemented. For the third quarter 2008 we expect our consolidated CASM, that’s cost per available seat mileage, excluding special items and holding fuel constant to be down about 2% year-over-year and our mainline CASM again holding fuel rate constant and excluding special items to be down about 2.5% year-over-year.

For the full year 2008 excluding special items and holding fuel constant we now expect consolidated CASM to be down 0.5% to 1% and mainline CASM to be down 1% to 1.5%. Our jet fuel of course continued to set new highs during the quarter and for the same quarter consolidated fuel expense was 40% of our total cost.

You’ll note that the fuel was almost twice the cost of wages, salaries and related costs in the second quarter. For years we’ve focused on fuel efficiency in our operation but at today’s prices of course it’s even more imperative.

We continue to make improvements by retiring many of our least fuel-efficient mainline aircraft and continue in our winglet program and working on a variety of other fuel-savings initiatives. Getting non-essential weight off the aircraft continues to be a big focus.

For example we’ll begin using a lighter more durable life vest. We estimate at current fuel prices we’ll save about $2 million a year from this action alone because of the weight savings once the fleet is fully converted.

And we continue to hedge a portion of our near-term fuel needs using a combination of callers and call options in both heating oil and crude oil. Additional details on our most recent hedge position can be found in the investor update.

On the capital rating front Jerry, Jack and the entire corporate finance team as well as the legal team were kept pretty busy during the quarter raising money for us. During the quarter we sold 11 million shares of Continental common stock for net proceeds of approximately $162 million.

In addition we sold our remaining stake in Copa and received net proceeds of $149 million recognizing a gain of $78 million. Our co-brand bank card partner Chase approached us earlier in the year asking us to extend the term of our co-brand relationship, which we did in the second quarter.

In June we received a payment of $413 million from them, $178 million of which is for certain commitments related to the co-branding agreement including the extension of the agreement through the end of 2016 and the balance is related to advance purchase of frequent flier miles. We also amended our bank card processing agreement during the quarter.

The agreement extended the term of the agreement through December 2016 and modified certain covenants. Trigger levels to post additional collateral are no longer tied to a fixed charge coverage ratio.

They’re now tied to our unrestricted cash and short-term investment balance. More details regarding the amended covenants and collateral requirements can be found in our second quarter 10Q which we expect to file in the next few days.

The team also closed transactions to borrow approximately $208 million under various debt agreements secured by aircraft purchase agreements in mainline jet aircraft. We received net proceeds of $173 million in the second quarter and expect to receive the remaining funds in the fourth quarter of 2008.

We’ve now completed financing arrangements for all aircraft delivering in 2008. In cash we ended the second quarter with $3.4 billion of unrestricted cash and short-term investments which excludes all student loan related option rate securities.

We expect to end the third quarter between $2.8 million and $2.9 million of unrestricted cash, again excluding the option rate securities. We expect cash capital expenditures for 2008 to be $427 million net of aircraft purchase deposits paid or refunded and we have more detail on the cap ex in the investor update.

The pension year-to-date we’ve contributed $102 million to our pension plan satisfying our required minimum contributions for the calendar year 2008. Given current market conditions we do not plan to make any additional contributions this year.

Concluding, the environment continues to be very challenging. Whatever we need to make it through this challenging time, we plan to do it.

The Continental team has a great track record of being nimble and responding as necessary to changes in the industry environment. We intend to return to profitability and we’ll be working hard to make that happen.

And finally, we expect that as I mentioned we’ll file second quarter Q in the next few days. And I too want to congratulate Zane on his appointment.

Zane, from now on it’s all yours baby. With that we’ll turn it back to Larry.

There are many significant changes happening at Continental and in our industry. These are tough times but there’ll always be an airlines industry and we intend not only to survive these tough times but to come out the other side as a profitable carrier with a strong competitive position.

We’ve taken numerous steps to bolster our liquidity and reduce our capacity plans to better align ourselves with the current economic environment. And if additional changes are required we’ll do what’s appropriate.

While we’re making changes to the business to cope with near-term issues, we’ll remain focused on positioning ourselves for the long term which includes our plans to transition from SkyTeam into Star as well as continuing to maintain our culture and invest in our product. With that I’ll turn the call back over to DeAnne to begin our Q&A.

With that we’ll begin the question and answer session for the analysts followed by the question and answer session for the media.

If I can just ask a couple of questions, first on liquidity, you guys do a great job finding sources but what’s left? What’s still there that we are probably not thinking about?

As we say I think almost every quarter, we prefer not to comment on transactions until we’ve completed them. So suffice it to say we stay very focused on liquidity and continue to look at opportunities as they present themselves.

I guess let me just try to be a little bit more specific. So you’ve pre-sold some miles.

Is there a lot left that you could do or did you kind of max out in that regard? And I know you don’t like to say kind of what you think you could monetize, but is there any meaningful unencumbered assets or will you have to get creative from here?

Well I think two things Bill. One, I think typically we pre-sell miles I think for a brand new carrier that’s typically tied to renewing a contract or an extension of the contract or else you’re selling those miles at a discount which we wouldn’t want to do.

And so I think we’ll always look at balancing good economic decisions, but I think the key there was that was just part of renewing the contract but clearly opportune based on the environment. Two, think with regard we have continually kept most of our assets pledged.

We’ll always look for opportunities. Clearly the option rates are not included in the cash balance that we allude to, so we’ve got some assets there.

We’ll just see how the whole option rate market continues to evolve and we’ll always look for other creative opportunities. But I think also there was clearly a push to make sure we had a very strong balance at the end of the second quarter and I think as you see the second quarter results come out relative some others you’ll see we’re in a pretty good position.

Just one quick follow up, on business travel, Jeff Smisek, you went through some comments there and I’m just curious if you think that some of the commentary that you’re hearing from your corporate if that’s sort of symptomatic of a coming downturn in business travel. Is there sort of an unambiguous sign that you can sort of see from past cycles where you say, “Well that’s actually the thing that makes us worried.

That’s the thing that we watch for.” ?

Bill I think what we see is businesses operating in what’s characterized as a generally uncertain environment. I mean some of our business customers, for example some of the financial institutions, clearly they’re under pretty tight screws on some of their travel.

Others for example sitting here in Houston the gas comes up for service companies, these guys are living large and flying all around the world up front and spending money like drunken sailors. So it just depends upon the business.

I think in general what we’re seeing are reactions to a generally weaker economic environment and businesses tightening down on their travel budgets, not so much necessarily by decreasing them because they still have to get out and have face time with clients and customers, etc., but making sure that you’ve got the higher level of approval authority. Some of the folks who perhaps used to be able to fly up front, they have a little more restriction on their ability to fly up front.

Things like that which you see in tougher economic times.

And Bill I think that clearly you see some indicators. The problem is those indicators might have predicted 10 of the last five downturns.

People are always looking for the recession where things are going down and so clearly since the beginning of the year there’s been tremendous talk about the economy and a downturn and where things are. So, it’s one of those things that clearly its got our focus and attention but it’s difficult to know if this is a false alarm or a real alarm and we’ll only see that if we see business travel unfold over the fall.

But, clearly a risk.

Larry some just general questions on your outlook, the first thing is are you part of the airline movement for congressional investigation of the futures market in oil? And, if you are, what’s your background on that?

What’s your thinking on that?

Yes, I signed the letter that the ATA had and I’m definitely part of the ATA board and part of that group. My general view is that we’ve got two issues here, we’ve got a supply issue that’s not keeping up with demand and then we’re seeing huge volatility on a day-to-day basis.

I think there’s clearly a underlying supply element here we’ve got to address for the long term but when you see oil move $5 and $10 in a day and then move back $10 a couple of days later, yesterday at least you could tie it to supply but many of these days you can’t tie it to supply. So, clearly, there’s a speculative element as well as a supply element and I think we’d all be better off if we could take some of the volatility out of the oil market.

It’s interesting you don’t see, from the supply side, lines anywhere like you saw in the mid 70s yet you’ve seen incredible price escalation and so clearly I think there’s an element of both short term volatility driven by speculators as well as some long term supply issues and my hope is that the congress will address both of those issues.

Larry the other big picture question that keeps coming up now, consultants, politicians, the media, even a former Enron executive have been saying that maybe the industry needs to be reregulated. Do you have any thoughts on that?

Yes. I said this earlier, I think it was at the Merrill Lynch conference, if you look back at the last 30 years there hasn’t been a time where I’d say it’s been real good for customers, passengers or airline employees.

Clearly, customers have gotten lower fares if you look at the adjustment but I think there’s tremendous unhappiness kind of on all fronts and we need to go back. I think I’d start with air traffic control system, I think Congress has failed there to really lay out the plan to get us the infrastructure we need to operate.

And, we may see some drop off in that pressure again as people reduce capacity again this fall but, these are things that take a long time to do and we need to get the air traffic control system moving and fixed. I was with Senator Rockefeller last week and he’s very focused on it.

I commend, he’s been working very hard to try to move that effort forward but we need to get a focus in Congress I think first on air traffic control system but really to step back and look at the business. Bob Crandall’s very thoughtful if you look at what he’s saying.

I think you’re not going to have regulation like you had pre 78 but I do think we need to look at how we make the structure better and I would be very supportive of an effort to look at what changes we can make to provide a more stable environment for everybody. I think that’s good for the country, I think it’s good for the airlines, I think it would be good for our customers, I think it would be good for our employees.

I’m curious on the Express Jet contract, the revised contract if in addition to the cost savings you’ve quantified if there’s any revised language that would be relevant if Continental or Express Jet were to file bankruptcy. I’m still trying to quantify the risk to big Continental if Ex Jet is somehow forced to file.

I don’t think there’s any significant changes in the contract that relate to that. I did say that I think the changes that rather than being able to terminate with basically 12 months notice instruct to pull down this provides some stability to Express Jet.

It’s a seven year long term contract that while at a lower rate is closer to where the marketplace is. I also believe provide them the opportunity to add some stability to their company.

Clearly, they’ve made some changes outside of that contract and I’ll let them comment on those. But, I just think Express Jet does a good job for us.

I think this gives some stability to the situation and allows them to plan going forward knowing they’ll be a partner to us for the long term. In addition, we relieved them of several restrictions that they had on how they could operate, what they could do so I think it gives some more flexibility to them in addition which will make them a stronger more viable company for the future.

The way that you said closer to market though might have implied and this might not have been your intent Larry, that they’re still somewhat above average?

I think if you looked at a pure competitive bid situation we might have been able to get a rate that was somewhat lower than where we were. We don’t believe, or I think I’m very comfortable with that but we made a significant improvement in our rate, enough so that we were comfortable balancing that with the transition risk and the great job that Express Jet does for us.

We were looking to find a solution with Express Jet. Jim worked very hard to try to find a solution.

From Express Jet’s side, they were looking to find a solution and so I think in all cases we compromised to get to a result that I think is good for both companies and avoided a lot of disruption that could have otherwise occurred and so we were willing to spend a little bit to avoid that.

And a second question, when you net any breakage costs against the move from SkyTeam to Star, any quantification as to how the overall benefits are going to compare? I’m assuming you wouldn’t switch teams if it wasn’t P&L positive?

It’s hard to quantify still models and alliances exactly how that will run. Clearly, we think it’s a positive once we’ve got the transition completed, once we get there that but I think the real positive for us is where we think it will take us long term and the partners and the ability.

But, we’ve changed strategy as well by going in to, or proposing to go in to a JV with antitrust immunity across North Atlantic and broaden that in other areas of the world and we think that provides significant long term benefits as well. So, it’s both the fact that we think the alliance will provide more benefit to us and two, with the strategy changes we’re opening up a lot of new opportunities.

I’d also add that we think the cooperation we have with United, we’re going to look to find every opportunity we can there to create both customer benefits, make it as seamless as we can make it as well as be as efficient as we can be.

Yes, just two accounting questions, looking at your guidance when you look at the cap ex, the cash cap ex piece it looks like in the latest piece it looks like you’re getting more money back in your next purchase deposit line and yet it doesn’t look like there’s been any change to the fleet situation. What is that?

Is that something back from Boeing? Anything on that front?

The purchase deposits are obviously on the Boeing equipment and I think with the 787 delays out there, we’re experiencing a little bit of something different than what we might have otherwise expected to see at that point. I think it’s mostly attributable to that.

Will there be further monies coming back as a result of that later this year or in 2009?

Well, this was for the full year guidance so that takes care of year. I don’t know if I know the answer to that off the top of my head Michael.

Then my second question, when you look at the guidance for the third quarter, it’s not that far off from what you did in the June quarter. And yet, there’s a lot of ancillary initiatives that are out there.

Is there upside risk to that number? Is that a conservative take on that or are the bag feels is that going to just up as another line item.

Am I missing something there?

That can go in to other revenue line.

Your third quarter I think it’s similar to what it was in the second quarter?

Bags are just ramping that up. I don’t recall the exact day of the intuitive.

Well, we launched in May but there was some ticket travel dates with your summer travel especially for those family vacations people but further in advance and so they booked prior to the policy changes.

Mike, I do say that I will tell you that our general philosophy is to always try to be conservative with the guidance especially in areas where we have new fees. And, I will join you in being hopeful that it’s better than that but that’s what we’re comfortable with today as far as what we see as we ramp in some of these in service fees.

But, we’re very happy with how they’re going and clearly we think they’re providing operational benefits as I alluded to in my comments and some cost savings as well as to the fees and we are on the second bag somewhat indifferent as to the fee or not having the bag checked because they’re clearly very positive operational and cost impacts to us to see a rejection in those second bags. And, people who check two bags, the second bag will be just people who are tending to just bring more and so from a weight perspective that second bag is very key to us.

The first question that I have is probably a difficult one to phrase but, your comment on ancillary revenues specifically the second bag checked was interesting because it seems as though people are checking fewer second bags so it’s possible that the revenues you would expect from that aren’t as much. But, at the same time you mentioned the cost savings to the bottom line.

So, are the cost savings that you’re seeing on the bottom line as much as the potential revenue benefits that you thought you would see? So, even if people aren’t checking as many bags there’s still the net same benefit from those ancillary revenue strategies?

It will take us a little more time to get a clear grasp of that and get everybody transitioned in. But, clearly our belief in setting the fee was that the third bag fee is substantially higher than second bag fee and so there’s a case where we’re trying to recover our marginal costs on the third bag and we also tend to bulk out the aircraft in some place both in Latin American and some domestic flights you run in to capacity issues.

Clearly, we’ve set that second bag fee with a view that we’re happy if you don’t check the second bag. The savings we get we’re okay with the fee.

We were trying to find that balance. We need some more data before we can tell you we think they’re both right in synch as we get fully transitioned in and look at the impact, especially on our hub operations on connect both on mishandled bags which we are seeing our mishandled bag numbers improve significantly since we moved the second bag.

But, we also have a lot of other initiatives Bill [Mian] and his team are doing just a great job bringing it in. So, it’s difficult to separate how much of this is some of the other initiatives on how much of this is second bag without a little more data.

Then the next follow up question is just one more on the general state of the industry in the fourth quarter because you mentioned that you’re seeing some stiff competition at last on the fare front from LCCs and so despite some actions that the largest legacy carries might take to either cut some capacity or raise some fares you’re not seeing the follow through from the LCCs. So, how do you see the situation playing out if in the fourth quarter people like you and AMR are cutting capacity substantially but for example, someone like a Southwest doesn’t and still undercuts fares.

Does that lead to the legacy carriers saying, “Never mind, we still have to go back to competing on capacity?” Or, do you just cut more?

How does that play out if the LCCs continue to throw a wrench if you will in the capacity reduction plans with you guys.

I think while clearly you aren’t seeing the LCCs cut capacity at the levels that the majors are, if you look across the system whether it’s Southwest or Jet Blue, on a relative basis to their growth in the past, you are seeing significant capacity discipline across the industry. We are seeing an average fare as we look at fall bookings that is significantly higher than a year ago.

The question is what will the demand levels be at those higher fares? Who needs to go on sale?

What other actions happen in the industry? Because, this has been very different than previous downturns as you’ve literally seen an ATA or a Skybus go away overnight and so that can have capacity impacts on the industry as well.

So, it’s a thing that we’re going to take all the action that we need to take to make sure that we’re not only survivors but that we come out on the other end and are profitable and have a good solid business. And it’s a little difficult to speculate but I’d say where I disagree with your premise is that I do see the LCCs while they’re not cutting capacity clearly showing more discipline and looking at what they need to do and you see carriers like Midwest making significant reductions in their capacity.

I think this is a think that we’ll just keep an eye on and make sure that we’re doing what we believe is best for our shareholders and the company. I would tell you that what we’ve done to date is the fact that we’re getting rid of less fuel efficient planes that either we can sell or leases expire in relatively short term.

Capacity reductions get tougher as you go forward because you don’t have the fleet flexibility and in addition, we’ve been very focused on getting as many employee volunteers that we can get so that we can produce the impact on the operation. That also gets tougher as you go deeper so we’re clearly focused on trying to make sure that we get to the white level about the same time as I tell you future cuts are harder than the cuts we’ve done.

The one thing Justine that I would add to that is that as we have cut capacity, [inaudible] has cut capacity as the low cost competitors have dialed back their growth. That also gives us enhanced revenue management opportunities so you’re going to see our yields improving as a result and that’s really important as well.

Just a quick question for Jim Compton if he’s there or I guess Jeff Smisek. You talked about this shifting booking curve business travel kind of booking a little further out and the impact that’s having on your yields.

I’m curious if, and Jeff you were just talking about enhanced revenue management, have you put in enough fences where you’re confident that that changing behavior is not going to affect the ending outcome. That you’re not suffering dilution from that, from that change in the booking curve, or do we still need to come further on that before you can make that statement?

Yes, I think that over, as Jeff has mentioned over [inaudible] that we’ve seen in the past, another piece of that is a continuation to try to build up more of the fences in the segment business versus leisure and so whether it’s three day minimum stays or Friday night stays across, Saturday night stays, we’ve been pretty aggressive in that area in terms of putting those fences in. That being said, as people pre-plan and again, our sales force has continuous communication with the corporate travel partnerships that we have and they are telling us that pricing – they’re managing their budgets too so they do look for opportunities to book further out which then would say that they could hit a 14 day advance purchase fare that can have significant savings versus seven day AP for instance, and so forth.

So, I think we continue to look at it, we continue to kind of manage as Jeff made a great point that your yield increase two ways, you get yield increase by the absolute fare going up and you get yield increase by revenue managing your bucket. With capacity coming down that’s a great opportunity to continue to manage your bucket that might offset some of that behavior that we’re seeing moving forward.

It sounds like you think it will be modestly dilutive though with that behavior shift or is that not right?

Again, it’s hard to speculate on that. I think Larry advised in his comments that when we talk about the fourth quarter a significant piece of that traffic it just isn’t booking yet, we’re so far out on the booking curve.

So, what we see is we see good – we’re comfortable with our bookings and the fare levels that we have on the books today for the fourth quarter but that’s got to be correlated to more of a leisure type passenger so it’s a little bit early to speculate on where we’re going to be in terms of your question on dilution.

I think from a policy standpoint it’s always easy in a corporate world to change policy but as we all know in the business world flexibility and reacting to conditions is really important and so as you watch you really don’t know about close end traffic declines until you see them. Go back to the spring of 2000 there was a significant drop between April and May.

I will tell you, we looked back, there weren’t a lot of indicators that will tell you that was coming but when it happens you can clearly see it and, as I alluded to earlier, you predict that about 10 times for every five it happens and so you’re just keeping your eye out to say, “Look I know there some stress in the economy but I think it’s no different than the volatility you’re seeing in the market.” Monday was a pretty down day, Tuesday was a pretty down day, yesterday was a pretty good day.

We’re just kind of watching that but I will tell you that I do believe on close end traffic, especially from our [inaudible] insight that’s why revenue management works, it is more difficult to actually execute on 14 day advance purchase simply because in many cases businesses can’t plan that far in advance.

With that we’ll conclude the second quarter earnings Q&A with the analysts. We appreciate everybody’s time today and we’ll see you in about three months.

Thanks so much.