CONTINENTAL AIRLINES REPORTS SECOND QUARTER 2002 LOSS

16 July 2002

Continental Airlines (NYSE: CAL) today reported a second quarter net loss of $35 million ($0.55 diluted loss per share) excluding a previously announced fleet charge and write down of its government grant receivable, which compares favorably to the First Call estimate of $0.76 loss per share. Including those items, Continental reported a net loss of $139 million ($2.18 diluted loss per share). Although April and May were unprofitable, the company recorded a modest net income of $16 million for the month of June, excluding those items.

"Heavy fare discounting and a sluggish economy are bad enough, but when coupled with extraordinarily high security costs and the increasing airport 'hassle factor' we're in a no win situation," said Gordon Bethune, chairman and chief executive officer. "While it's great to outperform all of our hub and spoke competitors, we still need to find a way to make money."

Second Quarter Revenue and Capacity Results

Second quarter passenger revenue was $2.1 billion, down 14.8 percent from the same period last year, due to traffic and capacity declines and widespread industry fare discounting. Continental achieved a record mainline jet load factor of 75.3 percent in the second quarter of 2002 on substantially reduced capacity. While the airline's second quarter mainline jet capacity was down 9.8 percent compared with the same period in the prior year, Continental achieved a 1.5 point premium to the industry average load factor by closely managing capacity and utilizing the right-size aircraft to meet market demand. Industry fare discounting drove Continental's consolidated breakeven load factor up to 76.9 percent, an increase of 5.7 points over the second quarter of last year.

Mainline jet revenue per available seat mile (RASM) remained weak, yet Continental continued to enjoy domestic length-of-haul adjusted yield and RASM premiums to the industry. 

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"Thanks to our strong operation, we continue to retain a revenue premium to the industry despite a weak fare environment," said Larry Kellner, president of Continental Airlines. "As would be expected, bookings look good in this heavily discounted fare environment, unfortunately we do not expect to see improvement in near-term yields."

Second Quarter Operational Performance

During the quarter, Continental continued to excel at the fundamentals of its business, with a record on-time arrival rate of 85.2 percent and a completion factor of 99.8 percent, completing 29 days without a single flight cancellation. 
Continental Airlines and KLM Royal Dutch Airlines extended their cooperative marketing agreement and expanded codesharing on select flights operated by KLM to destinations in Europe, the Middle East and Africa that connect with Continental's recently-launched non-stop flights between Houston and Amsterdam. 

In addition, the company operated its first transatlantic flight with newly-designed sleeper seats in the BusinessFirst cabin. Continental has installed new seats on eight Boeing 777s that serve transatlantic and transpacific routes, and expects to complete installation on the rest of its Boeing 777 fleet by the end of October.
Continental teamed with eBay to announce a new, co-branded site (continental.ebaytravel.com) that allows OnePass members to bid on sporting events, VIP performing arts experiences and Continental Airlines Vacations using frequent flier miles. In addition, the airline's award winning frequent flyer program, OnePass, was named the best Elite Level Program of any U.S. airline at InsideFlyer's Annual Freddie Awards Competition.

Second Quarter Financial Results

Despite reduced capacity and significantly increased security and insurance costs, Continental's mainline jet cost per available seat mile (CASM) declined 3.1 percent (0.7 percent lower holding fuel rate constant) in the second quarter over the same period last year.

As previously reported, the company recorded a fleet charge of $96 million ($152 million before taxes) in the second quarter, primarily in connection with the impairment and accrual of lease exit costs of its MD-80 and turboprop aircraft. In addition, the company recorded a charge of $8 million ($12 million before taxes) to write down its receivable from the U.S. government related to the finalization of its grant application under the Air Transportation Safety and System Stabilization Act.

Continental ended the quarter with approximately $1.3 billion in cash and 
short-term investments.

During the second quarter, Continental received net proceeds of $447 million from ExpressJet's initial public offering. This sale of shares was accounted for as a capital transaction, resulting in a $291 million increase in additional paid-in capital and a $175 million increase in tax liabilities. The company contributed $150 million of the proceeds to its pension plan. Following the initial public offering, Continental owns 53 percent of ExpressJet.

"We're pleased with our overall cost performance for the quarter," said Jeff Misner, Continental's senior vice president and chief financial officer. "However, we need to more aggressively review every aspect of our operation to ensure our cost structure reflects what our customers are willing to pay for."

During the second quarter, the Company took delivery of one Boeing 777-200, one Boeing 737-900 and four Boeing 767-400 extended range aircraft, the last aircraft deliveries scheduled for 2002. ExpressJet took delivery of 13 Embraer aircraft during the quarter. 

Corporate Background

Continental Airlines is the fifth largest airline in the U.S., offering more than 2,100 departures daily to 122 domestic and 90 international destinations. Operating hubs in New York, Houston, Cleveland and Guam, Continental serves more international cities than any other U.S. carrier, including extensive service throughout the Americas, Europe and Asia.