THE $7.46 PER SHARE CUSHION!

Yes, Continental Airlines is heavily in debt. Yes, the bond rating is junk. Yes, other major competitors are under court bankruptcy protection. Yes, the company is the most international of American firms and yes, international business travel is booming. Yes, the company has cut annual labor costs by $7.46 per share!

The final tally is not available because the attendants must vote in January. Prior to the vote, the tally is about $418 million per year in labor savings. The company sought savings from attendants of $82 million. An agreement was reached a couple weeks ago but, again, the vote will be held in January.

Yesterday, Standard and Poor’s reiterated their strong buy recommendation on the stock. The firm raised its 2006 earnings estimate from $.85 to $1.75. It raised its price target from $19 to $37! It raised its price target from $19 to $37! It raised its price target from $19 to $37! (Did you catch that last sentence?

One of the conservative assumptions made by S&P is that fuel costs will rise another 10% in 2006 after a 55% increase in 2005. I disagree with the projected increase although I must confess that T. Boone predicts that after crude hits $50 to $53 this winter that it will rise to a new peak by next summer. T. Boone has an excellent track record.

This morning, a gusher hit in the Gulf of Mexico barely rippled the market. The 3,000 active rigs may yield a nice surprise at any time. Do you remember how big a surprise it was when the north sea wells gushed? Yes, they are being depleted rapidly but there are reasonable estimates of 3 Trillion Barrels yet undiscovered.

The bottom line of this report is that, with airlines flying more full seats than ever before and with labor costs reduced dramatically, international airlines are going to make large profits for the next several years.

It is always a bit scary to buy a stock that has a negative book value. Three years ago, when we bought Nextel (NXTL--S), it was a difficult purchase. The stock went from $3 to $28 in no time flat. The negative book value was not important but the future earnings were. Buy CAL. If you must split the purchase, buy half CAL and half AMR; the reason to split is to give yourself the confidence to buy a full position. Buy with confidence, the firm has negotiated a $7 per share cushion!