Continental Airlines today
issued the following bulletin to its employees to update them on the
latest actions the company is taking to reduce its pay and benefit
expenses: Continental today announced adjustments to management’s annual incentive
program and that officers will forego their restricted stock units (RSUs)
for 2005, in order to avoid the appearance that management could benefit
from the $500 million reduction in pay and benefits.

At management’s request, the HR committee of Continental’s board of
directors has adjusted management’s annual incentive program that pays
management when Continental achieves certain targeted levels of Return On
Base Invested Capital (ROBIC). The HR committee raised the level of return
required before any incentives are paid to eliminate the effect in 2005 of
employee pay and benefit reductions.

When targets are set for 2006 and beyond, they will also be set so that no
annual incentive is paid as a result of the pay and benefit reductions.

In addition, Continental’s officers will voluntarily surrender all of
their June 2005 Restricted Stock Units (RSUs), to avoid even the
appearance that officers would personally benefit from the pay and benefit
reductions. Those RSUs would have had the opportunity to pay out this year
if Continental’s stock price were to increase to $17.48 by June 30, 2005.

The officer group made its decision to make these changes to its
compensation to avoid the appearance that the $500 million in pay and
benefit reductions Continental is seeking would fund any payout in 2005
under the RSU program or management’s incentive program.

“Some employees told us that they were concerned that the incentive
program or RSU program will pay out this year as a result of the pay and
benefit cuts,” said Larry Kellner, chairman and chief executive officer.
“The entire officer group wanted to make certain that no employee feels
his or her cut was being used to fund the bonus program or the RSUs for
2005. Now that this issue is behind us, we all must work hard on what’s
really important—finalizing the $500 million of wage and benefit
reductions by Feb. 28. Time is running out for Continental. Working
together, we can preserve the careers and retirement of our co-workers and
survive and grow, where so many of our competitors have shrunk and failed.”

No change was made to Continental’s New Long-Term Incentive Program
(NLTIP) for management. This is because that program measures
Continental’s relative Earnings Before Interest, Taxes, Depreciation,
Amortization and Aircraft Rent (EBITDAR) margin performance, as compared
to its competitors. Since performance is judged on a relative basis, wage
and benefit reductions at other carriers and at Continental are
automatically taken into account, so no further adjustment for
Continental’s wage and benefit reductions is appropriate. However, since
incentives under that program are themselves based on participants’
salaries, potential pay outs under the NLTIP program are automatically
reduced because of the significant salary reductions taken by
Continental’s officer group. The earliest payout opportunity under the
NLTIP program would be in 2007.

As previously announced, Continental is working with all employee groups
to implement a $500 million reduction in pay and benefits by Feb. 28,
2005. To take the lead in these reductions, Larry and President Jeff
Smisek have already agreed to reduce both their base salaries and annual
and long-term performance compensation by 25 percent and 20 percent,
respectively. Both Larry and Jeff declined their annual bonus for 2004.

The rest of Continental’s officer group also has agreed to cut their
salaries and annual and long-term performance compensation by up to 20
percent.
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