| **UNITED STATES**                      |
|----------------------------------------|
| **SECURITIES AND EXCHANGE COMMISSION** |
| WASHINGTON, D.C. 20549                 |

**Form 10-Q**

| **[X]**                  |                                                           | **Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**  |
|--------------------------|-----------------------------------------------------------|----------------------------------------------------------------------------------------------|
|                          | **For the quarterly period ended June 30, 2004**          |
|                          | **or**                                                    |
| **[   ]** |                                                           | **Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|                          | **For the transition period from__________ to__________** |

Commission File Number 1-31300**EXPRESSJET HOLDINGS, INC.***(Exact name of registrant as specified in its charter)*

| **Delaware** (*State or other jurisdiction of incorporation or organization)*               | **             ** | **76-0517977***(I.R.S. Employer Identification No.)* |
|---------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------|------------------------------------------------------|
|                                                                                   |                                                                                    |                                                      |
| **1600 Smith Street, Dept. HQSCE Houston, Texas***(Address of principal executive offices)* |                                                                                    | ******77002***(Zip Code)*                            |

**713-324-2639***(Registrant's telephone number, including area code)*

**NOT APPLICABLE***(**Former name, former address and former fiscal year, if changed since last report)*

            Indicate by check mark whether registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days.

|      Yes | **   ****[X]****    ** |     No    |
|-----------------------------------|-----------------------------------------------------------|----------------------------------------------|

            Indicate by check mark whether the registrant isan accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

|      Yes |      **[X]****    ** |     No    |
|-----------------------------------|--------------------------------------------------------------|----------------------------------------------|

As of July 19, 2004, 54,370,345 shares of common stock were outstanding.

----

**TABLE OF CONTENTS**

****

| ** **        | ** **   |                                                                                                      |              |          |
|-------------------|--------------|------------------------------------------------------------------------------------------------------|--------------|----------|
| **PART I.**       |         | **FINANCIAL INFORMATION**                                                                            |              | **PAGE** |
| Item 1.           |         | Financial Statements:                                                                                |              |          |
|              |         | Consolidated Statements of Operations (Unaudited): Three and six months ended June 30, 2004 and 2003 |              | 1        |
|              |    | Consolidated Balance Sheets: June 30, 2004 (Unaudited) and December 31, 2003                         |              | 3        |
|                   |              | Consolidated Condensed Statements of Cash Flows (Unaudited): Six months ended June 30, 2004 and 2003 |              | 5        |
|                   |              | Notes to Consolidated Financial Statements (Unaudited)                                               |              | 6        |
| Item 2.           |         | Management’s Discussion and Analysis of Financial Condition and Results of Operations          |    | 11       |
|   Item 3.    |         | Quantitative and Qualitative Disclosure About Market Risk                                            |              | 22       |
| **** Item 4.      |              | Controls and Procedures                                                                              |              | 23       |
| **PART II.** |         | **OTHER INFORMATION**                                                                                |              |          |
| Item 1.           |              | Legal Proceedings                                                                                    |              | 24       |
| Item 2.           |              | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                     |              | 24       |
| Item 3.           |              | Defaults Upon Senior Securities                                                                      |              | 24       |
| Item 4.           |              | Submission of Matters to a Vote of Security Holders                                                  |              | 24       |
| Item 5.           |              | Other Information                                                                                    |              | 24       |
| Item 6.           |              | Exhibits and Reports on Form 8-K                                                                     |              | 25       |
|                   |              | Signatures                                                                                           |              | 27       |
|              |              | Index to Exhibits                                                                                    |              | 28       |

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**PART I. FINANCIAL INFORMATIONItem 1. Financial Statements.**

**EXPRESSJET HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)(In thousands, except per share data)**

****

|                                                                                                                                                    |  |   | **Three Months Ended June 30,** |   |  |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--|---|---------------------------------|---|--|
|                                                                                                                                                    |  |   |                                 |   |
|                                                                                                                                                    |  |   |                                 |   |  |
|                                                                                                                                                    |  |   | **2004**                        |   |  |  | **2003** |  |  |
|                                                                                                                                                    |  |   |                                 |   |  |
| Operating Revenue................................................                                                                                  |  | $ | 370,849                         |   |  | $ | 320,303 |  |  |
|                                                                                                                                               |  |   |                                 |   |  |  |  |  |  |
| Operating Expenses:                                                                                                                                |  |   |                                 |   |  |  |  |  |  |
|      Wages, salaries and related costs.....................                                                               |  |   | 77,285                          |   |  |  | 68,805 |  |  |
|      Aircraft rentals.................................................                                                    |  |   | 69,590                          |   |  |  | 61,257 |  |  |
|      Aircraft fuel and related taxes............................                                                          |  |   | 46,893                          |   |  |  | 37,919 |  |  |
|      Maintenance, materials and repairs...................                                                                |  |   | 36,763                          |   |  |  | 33,237 |  |  |
|      Ground handling...............................................                                                       |  |   | 26,625                          |   |  |  | 22,004 |  |  |
|      Other rentals and landing fees...........................                                                            |  |   | 22,159                          |   |  |  | 24,182 |  |  |
|      Outside services..............................................                                                       |  |   | 6,638                           |   |  |  | 6,611 |  |  |
|      Depreciation and amortization...........................                                                             |  |   | 5,834                           |   |  |  | 4,851 |  |  |
|      Aircraft related and other insurance....................                                                             |  |   | 2,521                           |   |  |  | 1,075 |  |  |
|      Security fee reimbursement..............................                                                             |  |   | —                         |   |  |  | (3,034 | ) |  |
|      Other operating expenses.................................                                                            |  |   | 26,390                          |   |  |  | 18,325 |  |  |
|                                                                                                                                               |  |   |                                 |   |  |  |  |  |  |
|                                                                                                                                               |  |   | 320,698                         |   |  |  | 275,232 |  |  |
|                                                                                                                                               |  |   |                                 |   |  |  |  |  |  |
| Operating Income..................................................                                                                                 |  |   | 50,151                          |   |  |  | 45,071 |  |  |
|                                                                                                                                               |  |   |                                 |   |  |  |  |  |  |
| Nonoperating Income (Expense):                                                                                                                     |  |   |                                 |   |  |  |  |  |  |
|      Interest expense..............................................                                                       |  |   | (3,004                          | ) |  |  | (1,972 | ) |  |
|      Interest income................................................                                                      |  |   | 723                             |   |  |  | 579 |  |  |
|      Capitalized interest..........................................                                                       |  |   | 114                             |   |  |  | 303 |  |  |
|      Other, net........................................................                                                   |  |   | 10                              |   |  |  | (30 | ) |  |
|                                                                                                                                               |  |   |                                 |   |  |  |  |  |  |
|                                                                                                                                                    |  |   | (2,157                          | ) |  |  | (1,120 | ) |  |
|                                                                                                                                                    |  |   |                                 |   |  |  |  |  |  |
| Income before Income Taxes and Dividends.............                                                                                              |  |   | 47,994                          |   |  |  | 43,951 |  |  |
| Income Tax Expense.............................................                                                                                    |  |   | 18,334                          |   |  |  | 16,882 |  |  |
|                                                                                                                                               |  |   |                                 |   |  |  |  |  |  |
| Income before Dividends........................................                                                                                    |  |   | 29,660                          |   |  |  | 27,069 |  |  |
|                                                                                                                                               |  |   |                                 |   |  |  |  |  |  |
| Dividends on Mandatorily Redeemable Preferred Stock      of Subsidiary................................................... |  |   | —                         |   |  |  | (177 | ) |  |
|                                                                                                                                               |  |   |                                 |   |  |  |  |  |  |
| Net Income Applicable to Common Stockholders.....                                                                                                  |  | $ | 29,660                          |   |  | $ | 26,892 |  |  |
|                                                                                                                                               |  |   |                                 |   |  |  |  |  |  |
| Basic Earnings per Common Share........................                                                                                            |  | $ | 0.55                            |   |  | $ | 0.42 |  |  |
|                                                                                                                                               |  |   |                                 |   |  |  |  |  |  |
| Diluted Earnings per Common Share......................                                                                                            |  | $ | 0.55                            |   |  | $ | 0.42 |  |  |
|                                                                                                                                               |  |   |                                 |   |  |  |  |  |  |
| Shares Used in Computing Basic Earnings per      Common Share................................................             |  |   | 54,202                          |   |  |  | 64,000 |  |  |
| Shares Used in Computing Diluted Earnings per      Common Share................................................           |  |   | 54,216                          |   |  |  | 64,004 |  |  |

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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****

**EXPRESSJET HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)(In thousands, except per share data)**

****

|                                                                                                                                                    |  |   | **Six Months Ended   June 30,** |   |  |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--|---|--------------------------------------|---|--|
|                                                                                                                                                    |  |   |                                      |   |
|                                                                                                                                                    |  |   |                                      |   |  |
|                                                                                                                                                    |  |   | **2004**                             |   |  |  | **2003** |  |  |
|                                                                                                                                                    |  |   |                                      |   |  |
| Operating Revenue................................................                                                                                  |  | $ | 734,883                              |   |  | $ | 626,865 |  |  |
|                                                                                                                                               |  |   |                                      |   |  |  |  |  |  |
| Operating Expenses:                                                                                                                                |  |   |                                      |   |  |  |  |  |  |
|      Wages, salaries and related costs.....................                                                               |  |   | 156,474                              |   |  |  | 135,297 |  |  |
|      Aircraft rentals.................................................                                                    |  |   | 137,201                              |   |  |  | 118,706 |  |  |
|      Aircraft fuel and related taxes............................                                                          |  |   | 90,045                               |   |  |  | 70,718 |  |  |
|      Maintenance, materials and repairs...................                                                                |  |   | 74,815                               |   |  |  | 63,149 |  |  |
|      Ground handling...............................................                                                       |  |   | 51,140                               |   |  |  | 42,210 |  |  |
|      Other rentals and landing fees...........................                                                            |  |   | 42,650                               |   |  |  | 47,716 |  |  |
|      Outside services..............................................                                                       |  |   | 16,677                               |   |  |  | 16,110 |  |  |
|      Depreciation and amortization...........................                                                             |  |   | 11,596                               |   |  |  | 9,646 |  |  |
|      Aircraft related and other insurance....................                                                             |  |   | 4,950                                |   |  |  | 2,089 |  |  |
|      Security fee reimbursement..............................                                                             |  |   | —                              |   |  |  | (3,034 | ) |  |
|      Other operating expenses.................................                                                            |  |   | 50,561                               |   |  |  | 35,825 |  |  |
|                                                                                                                                               |  |   |                                      |   |  |  |  |  |  |
|                                                                                                                                               |  |   | 636,109                              |   |  |  | 538,432 |  |  |
|                                                                                                                                               |  |   |                                      |   |  |  |  |  |  |
| Operating Income..................................................                                                                                 |  |   | 98,774                               |   |  |  | 88,433 |  |  |
|                                                                                                                                               |  |   |                                      |   |  |  |  |  |  |
| Nonoperating Income (Expense):                                                                                                                     |  |   |                                      |   |  |  |  |  |  |
|      Interest expense..............................................                                                       |  |   | (6,040                               | ) |  |  | (4,192 | ) |  |
|      Interest income................................................                                                      |  |   | 1,366                                |   |  |  | 1,038 |  |  |
|      Capitalized interest..........................................                                                       |  |   | 233                                  |   |  |  | 548 |  |  |
|      Other, net........................................................                                                   |  |   | 133                                  |   |  |  | (31 | ) |  |
|                                                                                                                                               |  |   |                                      |   |  |  |  |  |  |
|                                                                                                                                                    |  |   | (4,308                               | ) |  |  | (2,637 | ) |  |
|                                                                                                                                                    |  |   |                                      |   |  |  |  |  |  |
| Income before Income Taxes and Dividends.............                                                                                              |  |   | 94,466                               |   |  |  | 85,796 |  |  |
| Income Tax Expense.............................................                                                                                    |  |   | 36,086                               |   |  |  | 32,975 |  |  |
|                                                                                                                                               |  |   |                                      |   |  |  |  |  |  |
| Income before Dividends........................................                                                                                    |  |   | 58,380                               |   |  |  | 52,821 |  |  |
|                                                                                                                                               |  |   |                                      |   |  |  |  |  |  |
| Dividends on Mandatorily Redeemable Preferred Stock      of Subsidiary................................................... |  |   | —                              |   |  |  | (352 | ) |  |
|                                                                                                                                               |  |   |                                      |   |  |  |  |  |  |
| Net Income Applicable to Common Stockholders.....                                                                                                  |  | $ | 58,380                               |   |  | $ | 52,469 |  |  |
|                                                                                                                                               |  |   |                                      |   |  |  |  |  |  |
| Basic Earnings per Common Share........................                                                                                            |  | $ | 1.08                                 |   |  | $ | 0.82 |  |  |
|                                                                                                                                               |  |   |                                      |   |  |  |  |  |  |
| Diluted Earnings per Common Share......................                                                                                            |  | $ | 1.08                                 |   |  | $ | 0.82 |  |  |
|                                                                                                                                               |  |   |                                      |   |  |  |  |  |  |
| Shares Used in Computing Basic Earnings per      Common Share................................................             |  |   | 54,199                               |   |  |  | 64,000 |  |  |
| Shares Used in Computing Diluted Earnings per      Common Share................................................           |  |   | 54,230                               |   |  |  | 64,000 |  |  |

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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**EXPRESSJET HOLDINGS, INC.**** AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands)**

****

| **ASSETS**                                                                                                 |  |   | **June 30,** |   |   | **December 31,** |   |
|------------------------------------------------------------------------------------------------------------|--|---|--------------|---|---|------------------|---|
|                                                                                                            |  |   | **2004**     |   |   | **2003**         |   |
|                                                                                                            |  |   |              |   |
|                                                                                                            |  |   | (Unaudited)  |   |   |                  |   |
| Current Assets:                                                                                            |  |   |              |   |   |                  |   |
|      Cash and cash equivalents.........................                           |  | $ | 236,674      |   | $ | 189,892          |   |
|      Restricted cash.........................................                     |  |   | 3,200        |   |   | 3,200            |   |
|      Accounts receivable, net............................                         |  |   | 4,306        |   |   | 4,510            |   |
|      Spare parts and supplies, net.....................                           |  |   | 27,015       |   |   | 25,538           |   |
|      Prepayments and other..............................                          |  |   | 7,377        |   |   | 10,400           |   |
|                                                                                                            |  |   |              |   |   |                  |   |
|         Total Current Assets...............................        |  |   | 278,572      |   |   | 233,540          |   |
|                                                                                                            |  |   |              |   |   |                  |   |
| Property and Equipment:                                                                                    |  |   |              |   |   |                  |   |
|      Owned property and equipment:                                                |  |   |              |   |   |                  |   |
|         Flight equipment.....................................      |  |   | 197,065      |   |   | 193,523          |   |
|         Other..................................................... |  |   | 109,030      |   |   | 101,828          |   |
|                                                                                                       |  |   |              |   |   |                  |   |
|                                                                                                            |  |   | 306,095      |   |   | 295,351          |   |
|         Less:  Accumulated depreciation.............     |  |   | (68,250      | ) |   | (59,001          | ) |
|                                                                                                            |  |   |              |   |   |                  |   |
|                                                                                                            |  |   | 237,845      |   |   | 236,350          |   |
|                                                                                                            |  |   |              |   |   |                  |   |
|      Capital Leases:                                                              |  |   |              |   |   |                  |   |
|         Flight equipment.....................................      |  |   | 8,515        |   |   | 10,643           |   |
|         Other..................................................... |  |   | 4,375        |   |   | 4,375            |   |
|                                                                                                            |  |   |              |   |   |                  |   |
|                                                                                                            |  |   | 12,890       |   |   | 15,018           |   |
|         Less:  Accumulated amortization.............     |  |   | (4,169       | ) |   | (4,216           | ) |
|                                                                                                            |  |   |              |   |   |                  |   |
|                                                                                                            |  |   | 8,721        |   |   | 10,802           |   |
|                                                                                                            |  |   |              |   |   |                  |   |
|         Total Property and Equipment..................             |  |   | 246,566      |   |   | 247,152          |   |
|                                                                                                            |  |   |              |   |   |                  |   |
| Reorganization Value In Excess of Amounts                                                                  |  |   |              |   |   |                  |   |
|      Allocable to Identifiable Assets, net.............                           |  |   | 12,789       |   |   | 12,789           |   |
| Airport Operating Rights, net...........................                                                   |  |   | 4,317        |   |   | 4,443            |   |
| Note Receivable.............................................                                               |  |   | 5,000        |   |   | 5,000            |   |
| Debt Issuance Cost, net..................................                                                  |  |   | 3,998        |   |   | 4,159            |   |
| Other Assets, net...........................................                                               |  |   | 2,506        |   |   | 3,088            |   |
|                                                                                                       |  |   |              |   |   |                  |   |
|         Total Assets..........................................     |  | $ | 553,748      |   | $ | 510,171          |   |
|                                                                                                       |  |   |              |   |   |                  |   |

(continued on next page)

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**EXPRESSJET HOLDINGS, INC.**** AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except for share data)**

| **LIABILITIES AND**                                                                                                                                                                                                                                                                   |  |   | **June 30,** |   |        |   | **December 31,** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|---|--------------|---|--------|---|------------------|---|
| **STOCKHOLDERS' EQUITY (DEFICIT)**                                                                                                                                                                                                                                                    |  |   | **2004**     |   |        |   | **2003**         |   |
|                                                                                                                                                                                                                                                                                       |  |   |              |   |        |   |                  |   |
|                                                                                                                                                                                                                                                                                       |  |   | (Unaudited)  |   |        |   |                  |   |
| Current Liabilities:                                                                                                                                                                                                                                                                  |  |   |              |   |   |   |                  |   |
|      Current maturities of long-term debt .........................                                                                                                                                                                                          |  | $ | 865          |   |        | $ | 865              |   |
|      Current maturities of note payable to         Continental Airlines, Inc. ......................................                                                                                                 |  |   | 106,909      |   |        |   | 67,112           |   |
|      Current maturities of capital lease obligations............                                                                                                                                                                                             |  |   | 1,200        |   |        |   | 1,795            |   |
|      Accounts payable...................................................                                                                                                                                                                                     |  |   | 1,765        |   |        |   | 4,678            |   |
|      Accrued payroll and related costs............................                                                                                                                                                                                           |  |   | 57,130       |   |        |   | 40,128           |   |
|      Amounts due to Continental Airlines, Inc., net...........                                                                                                                                                                                               |  |   | 6,525        |   |        |   | 5,588            |   |
|      Deferred income taxes............................................                                                                                                                                                                                       |  |   | 8,945        |   |        |   | 30,433           |   |
|      Accrued other liabilities...........................................                                                                                                                                                                                    |  |   | 55,891       |   |        |   | 68,213           |   |
|                                                                                                                                                                                                                                                                                       |  |   |              |   |        |   |                  |   |
|         Total Current Liabilities.........................................                                                                                                                                                                    |  |   | 239,230      |   |        |   | 218,812          |   |
|                                                                                                                                                                                                                                                                                       |  |   |              |   |        |   |                  |   |
|                                                                                                                                                                                                                                                                                       |  |   |              |   |        |   |                  |   |
| Long-term Debt............................................................                                                                                                                                                                                                            |  |   | 20,732       |   |        |   | 21,164           |   |
|                                                                                                                                                                                                                                                                                       |  |   |              |   |        |   |                  |   |
| Note Payable to Continental Airlines, Inc.......................                                                                                                                                                                                                                      |  |   | 72,712       |   |        |   | 126,060          |   |
|                                                                                                                                                                                                                                                                                       |  |   |              |   |        |   |                  |   |
| 4.25% Senior Convertible Notes due 2023......................                                                                                                                                                                                                                         |  |   | 137,200      |   |        |   | 137,200          |   |
|                                                                                                                                                                                                                                                                                       |  |   |              |   |        |   |                  |   |
| Capital Lease Obligations.............................................                                                                                                                                                                                                                |  |   | 2,172        |   |        |   | 2,599            |   |
|                                                                                                                                                                                                                                                                                       |  |   |              |   |        |   |                  |   |
| Deferred Income Taxes.................................................                                                                                                                                                                                                                |  |   | 19,229       |   |        |   | 1,777            |   |
|                                                                                                                                                                                                                                                                                       |  |   |              |   |        |   |                  |   |
| Other Long-term Liabilities............................................                                                                                                                                                                                                               |  |   | 13,798       |   |        |   | 12,846           |   |
|                                                                                                                                                                                                                                                                                       |  |   |              |   |        |   |                  |   |
| Stockholders’ Equity (Deficit):                                                                                                                                                                                                                                                 |  |   |              |   |        |   |                  |   |
|      Preferred stock - $.01 par, 10,000,000 shares         authorized, one share issued and outstanding........                                                                                                      |  |   | —      |   |        |   | —          |   |
|      Common stock - $.01 par, 200,000,000 shares         authorized, 54,334,059 and 54,164,875 shares         issued and outstanding........................................ |  |   | 543          |   |        |   | 542              |   |
|      Deferred compensation............................................                                                                                                                                                                                       |  |   | (1,563       | ) |        |   | —          |   |
|      Additional paid-in capital..........................................                                                                                                                                                                                    |  |   | 161,985      |   |        |   | 159,841          |   |
|      Accumulated deficit................................................                                                                                                                                                                                     |  |   | (112,290     | ) |        |   | (170,670         | ) |
|                                                                                                                                                                                                                                                                                       |  |   |              |   |        |   |                  |   |
|         Total Stockholders’ Equity (Deficit)........................                                                                                                                                                                    |  |   | 48,675       |   |        |   | (10,287          | ) |
|                                                                                                                                                                                                                                                                                       |  |   |              |   |        |   |                  |   |
|         Total Liabilities and Stockholders’ Equity            (Deficit)............................................................                                              |  | $ | 553,748      |   |        | $ | 510,171          |   |
|                                                                                                                                                                                                                                                                                  |  |   |              |   |        |   |                  |   |

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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**EXPRESSJET HOLDINGS, INC. ****AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)(In thousands)**

|                                                                                                                                                                                                                       |  |   | **Six Months Ended June 30,** |   |                  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|---|-------------------------------|---|------------------|
|                                                                                                                                                                                                                       |  |   | ****                          |   |                  |
|                                                                                                                                                                                                                       |  |   | **2004**                      |   | **  ** |  | **2003** |  |  |
|                                                                                                                                                                                                                       |  |   | ****                          |   |                  |
|                                                                                                                                                                                                                       |  |   |                               |   |                  |  |  |  |  |
| Net Cash Flows from Operating Activities....................................                                                                                                                                          |  | $ | 72,812                        |   |                  | $ | 107,472 |  |  |
|                                                                                                                                                                                                                  |  |   |                               |   |                  |  |  |  |  |
| Cash Flows from Investing Activities:                                                                                                                                                                                 |  |   |                               |   |                  |  |  |  |  |
|      Capital expenditures............................................................                                                                                                        |  |   | (11,737                       | ) |                  |  | (22,467 | ) |  |
|      Proceeds from the transfer of flight equipment to         Continental Airlines, Inc.....................................................        |  |   | —                       |   |                  |  | 1,247 |  |  |
|      Proceeds from disposition of equipment.................................                                                                                                                 |  |   | 245                           |   |                  |  | 33 |  |  |
|                                                                                                                                                                                                                       |  |   |                               |   |                  |  |  |  |  |
|         Net cash used in investing activities...................................                                                                                              |  |   | (11,492                       | ) |                  |  | (21,187 | ) |  |
|                                                                                                                                                                                                                       |  |   |                               |   |                  |  |  |  |  |
| Cash Flows from Financing Activities:                                                                                                                                                                                 |  |   |                               |   |                  |  |  |  |  |
|      Gross proceeds from debt financing.......................................                                                                                                               |  |   | —                       |   |                  |  | 10,703 |  |  |
|      Payments on note payable to Continental Airlines, Inc............                                                                                                                       |  |   | (13,551                       | ) |                  |  | (98,545 | ) |  |
|      Payments on long-term debt and capital lease obligations.......                                                                                                                         |  |   | (1,455                        | ) |                  |  | (1,068 | ) |  |
|      Payments related to IPO underwriting discounts and         otherexpenses.................................................................       |  |   | —                       |   |                  |  | (34 | ) |  |
|      Proceeds from issuance of common stock.............................                                                                                                                     |  |   | 468                           |   |                  |  | — |  |  |
|      Dividends paid on mandatorily redeemable preferred         stock............................................................................... |  |   | —                       |   |                  |  | (175 | ) |  |
|                                                                                                                                                                                                                  |  |   |                               |   |                  |  |  |  |  |
|         Net cash used in financing activities...................................                                                                                              |  |   | (14,538                       | ) |                  |  | (89,119 | ) |  |
|                                                                                                                                                                                                                  |  |   |                               |   |                  |  |  |  |  |
|                                                                                                                                                                                                                       |  |   |                               |   |                  |  |  |  |  |
| Net Increase (Decrease) in Cash and Cash Equivalents................                                                                                                                                                  |  |   | 46,782                        |   |                  |  | (2,834 | ) |  |
|                                                                                                                                                                                                                       |  |   |                               |   |                  |  |  |  |  |
| Cash and Cash Equivalents – Beginning of Period.......................                                                                                                                                          |  |   | 189,892                       |   |                  |  | 120,930 |  |  |
|                                                                                                                                                                                                                       |  |   |                               |   |                  |  |  |  |  |
| Cash and Cash Equivalents – End of Period................................                                                                                                                                       |  | $ | 236,674                       |   |                  | $ | 118,096 |  |  |
|                                                                                                                                                                                                                  |  |   |                               |   |                  |  |  |  |  |
| Supplemental Cash Flow Information:                                                                                                                                                                                   |  |   |                               |   |                  |  |  |  |  |
|      Interest paid........................................................................                                                                                                   |  | $ | 6,036                         |   |                  | $ | 4,192 |  |  |
|      Income taxes paid (including payments under our          tax agreement with Continental Airlines, Inc.).....................               |  | $ | 48,581                        |   |                  | $ | 136 |  |  |

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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**EXPRESSJET HOLDINGS, INC.****AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

            We are a regional U.S. air carrier engaged in the business oftransporting passengers, cargo and mail.  Our principal asset is all of the issued and outstanding shares of capital stock ofXJT Holdings, Inc., the sole owner of the issued and outstanding shares of common stock of ExpressJet Airlines, Inc., whichoperates as “Continental Express” (together, "ExpressJet", "we", "us" and "our").  All of our flying is currentlyperformed on behalf of Continental Airlines, Inc. (“Continental”) pursuant to a capacity purchase agreement, andsubstantially all of our revenue is received under that agreement.  We provide all of Continental’s regional jet serviceout of New York/Newark, Houston and Cleveland.  We are economically dependent upon Continental for our operations and cashflows.  In addition, the capacity purchase agreement covers all of our existing fleet and all of our regional jets currentlysubject to firm aircraft orders. 

            We prepared the unaudited quarterly consolidated financialstatements included in this report pursuant to the rules and regulations of the Securities and Exchange Commission.  Somerequired information and footnote disclosures normally included in financial statements prepared in accordance with accountingprinciples generally accepted in the United States have been condensed or omitted pursuant to these rules and regulations.  Inour opinion, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly ourfinancial position, the results of our operations and our cash flows for the periods indicated.  These adjustments are of anormal, recurring nature.  All intercompany transactions have been eliminated in consolidation.  The accompanyingconsolidated financial statements should be read in conjunction with the consolidated financial statements and the notes theretocontained in our 2003 annual report on Form 10-K.  The results of operations for the periods presented are not necessarilyindicative of the results to be expected in the future.

            Certain reclassifications have been made in the priorperiods’ financial statements to conform to the current year presentation.

**Note 1 *–* Earnings Per Share**

            The following table sets forth the computation of basic anddiluted earnings per share for the three and six months ended June 30, 2004 and 2003 (in thousands):

|                                                                                                                                                                      |        |   | **Three Months Ended June 30,** |        |   | **Six Months Ended June 30,** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---|---------------------------------|--------|---|-------------------------------|
|                                                                                                                                                                      |        |   |                                 |        |
|                                                                                                                                                                      |        |   | ****                            |        |   | ****                          |
|                                                                                                                                                                      |        |   | **2004**                        |        |   | **2003**                      |  |  | **2004** |  |  | **2003** |
|                                                                                                                                                                      |        |   | ****                            |        |   | ****                          | ** ** |  | **** |  |  | **** |
| Numerator for basic earnings per share – net      income............................................................................. |   | $ | 29,660                          |   | $ | 26,892                        |  | $ | 58,380 |  | $ | 52,469 |
| Denominator for basic earnings per share –       weighted average shares....................................................          |        |   | 54,202                          |        |   | 64,000                        |  |  | 54,199 |  |  | 64,000 |
| Employee stock options..........................................................                                                                                     |        |   | 12                              |        |   | 4                             |  |  | 22 |  |  | — |
| Restricted stock.....................................................................                                                                                |        |   | 2                               |        |   | —                       |  |  | 9 |  |  | — |
|                                                                                                                                                                      |        |   |                                 |        |   |                               |  |  |  |  |  |  |
| Denominator for diluted earnings per share –      adjusted and assumed conversions.....................................               |        |   | 54,216                          |        |   | 64,004                        |  |  | 54,230 |  |  | 64,000 |
|                                                                                                                                                                      |        |   |                                 |        |   |                               |  |  |  |  |  |  |

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            We excluded 132,500 shares of restricted stock issued in May2004 from the weighted average shares used in computing basic earnings per share as these shares were not vested as of June 30,2004. 

            We excluded options to purchase 1.1million and 1.0 million shares of our common stock from the computation of diluted earnings per share for the three and sixmonths ended June 30, 2004, respectively, and 1.0 million and 1.3 million shares for the three and six months ended June 30, 2003,respectively.  These options' exercise prices were greater than the average market price of the common shares for therespective periods.  We also excluded approximately 7.5 million shares of potential common stock equivalents related to oursenior convertible notes from our computation of diluted earnings per share for the three and six months ended June 30, 2004, asthese shares are not currently convertible under the terms of the notes.

**Note 2 *–* Stock Plans and Awards**

           We account for our stock-based compensation arrangements using theintrinsic value method in accordance with Accounting Principles Board Opinion No. 25 - "Accounting for Stock Issued to Employees"("APB 25"), and related interpretations.  We have two stock-based compensation plans: the ExpressJet Holdings, Inc. 2002 StockIncentive Plan (the “Incentive Plan”) and the ExpressJet Holdings, Inc. 2003 Employee Stock Purchase Plan (the“ESPP”). 

           The Incentive Plan permits us to grant stock options and restrictedstock to our outside directors and our employees.  Under APB 25, if the exercise price of our stock options equals the fairmarket value of the underlying stock on the date of grant, no compensation expense is recognized.  Since our stock optionshave all been granted with exercise prices at fair market value, no compensation expense has been recognized under APB 25.  Werecognize compensation expense related to our restricted stock in accordance with the provisions of APB 25.  The totalcompensation expense to be incurred for each restricted stock grant will equal the product of the number of shares issued and theclosing price of our common stock on the issuance date.  Under APB 25, we do not recognize compensation expense related to theESPP.

            On May 5, 2004, our board of directors approved the issuanceof 132,500 shares of restricted stock to various employees and non-employee directors pursuant to the Incentive Plan. Restricted shares granted to our employees vest ratably over a four-year period.  Restricted shares granted to ournon-employee directors vest over six months.

            Under our ESPP, we issued 36,684 shares of our common stockat $12.75 per share during the first half of 2004 related to the purchase period of July to December 2003.  In July 2004, weissued 36,286 shares of our common stock at $10.32 per share related to the January to June 2004 purchase period.

           The following table illustrates the effect on net income andearnings per share assuming the compensation costs for our stock options, restricted stock and ESPP had been determined using thefair value method, prorated over the vesting periods at the grant dates, as required under Statement of Financial AccountingStandard No. 123 – “Accounting for Stock-Based Compensation” for the three and six months ended June 30, 2004 and2003 (in thousands, except for per share data):

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|                                                                                                                                                                                                                                           |        |   | **Three Months Ended June 30,** |        |   | **Six Months Ended June 30,** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---|---------------------------------|--------|---|-------------------------------|
|                                                                                                                                                                                                                                           |        |   |                                 |        |
|                                                                                                                                                                                                                                           |        |   | ****                            |        |   | ****                          |
|                                                                                                                                                                                                                                           |        |   | **2004**                        |        |   | **2003**                      |  |  | **2004** |  |  | **2003** |
|                                                                                                                                                                                                                                           |        |   | ****                            |        |   | ****                          |  |  | **** |  |  | **** |
| Net income as reported.............................................................                                                                                                                                                       |   | $ | 29,660                          |   | $ | 26,892                        |  | $ | 58,380 |  | $ | 52,469 |
| Add:  Total stock-based compensation      expense included in reported net income, net of      related tax effects................................................................ |        |   | 71                              |        |   | —                       |  |  | 71 |  |  | — |
| Deduct:  Total stock-based compensation      expense determined under fair value based      method for all awards, net of related tax effect........................               |        |   | (652                            | )      |   | (645                          | ) |  | (1,264 | ) |  | (1,464) |
|                                                                                                                                                                                                                                           |        |   |                                 |        |   |                               |  |  |  |  |  |  |
| Pro forma................................................................................                                                                                                                                                 |        | $ | 29,079                          |        | $ | 26,247                        |  | $ | 57,187 |  | $ | 51,005 |
|                                                                                                                                                                                                                                           |        |   |                                 |        |   |                               |  |  |  |  |  |  |
| Basic earnings per share                                                                                                                                                                                                                  |        |   |                                 |        |   |                               |  |  |  |  |  |  |
|      As reported.........................................................................                                                                                                                        |        | $ | 0.55                            |        | $ | 0.42                          |  | $ | 1.08 |  | $ | 0.82 |
|      Pro forma...........................................................................                                                                                                                        |        | $ | 0.54                            |        | $ | 0.41                          |  | $ | 1.06 |  | $ | 0.80 |
|                                                                                                                                                                                                                                           |        |   |                                 |        |   |                               |  |  |  |  |  |  |
| Diluted earnings per share                                                                                                                                                                                                                |        |   |                                 |        |   |                               |  |  |  |  |  |  |
|      As reported.........................................................................                                                                                                                        |        | $ | 0.55                            |        | $ | 0.42                          |  | $ | 1.08 |  | $ | 0.82 |
|      Pro forma...........................................................................                                                                                                                        |        | $ | 0.54                            |        | $ | 0.41                          |  | $ | 1.05 |  | $ | 0.80 |

            The pro forma effect on net income per share is notrepresentative of the pro forma effects in future periods.

**Note 3 – Note Payable to Continental Airlines, Inc.**

            At June 30, 2004, our note payable to Continental, includingcurrent maturities, had an outstanding balance of $179.6 million.  The note accrues interest based on the three-month LIBORplus 1.25% per annum, subject to a cap of 5.4% in 2003 and 6.7% in 2004.  There is no interest rate cap after 2004.  Thequarterly payment on the note for principal and interest is $27.9 million, payable through the earlier of March 31, 2007 or untilthe principal balance and any accrued unpaid interest are paid in full.  During 2003, we made discretionary prepayments of$83.3 million, of which a portion was due that year.  For the six months ended June 30, 2004, no discretionary prepaymentswere made.  Total quarterly payments made during the six months ended June 30, 2004, net of prepayments made in prior periods,was $15.9 million, of which $13.6 million related to principal.  The note is an unsecured general obligation and issubordinated in right of payment to all of our future senior indebtedness.

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****

**Note 4 – Income Taxes**

            At December 31, 2003, we had federal net operating losscarryforwards of approximately $60.7 million, which expire between 2004 and 2020.

            In conjunction with our initial public offering(“IPO”) in April 2002, the tax basis of our tangible and intangible assets was adjusted to fair value.  Thisadjustment to tax basis should result in additional tax deductions being available to us through 2017.  In accordance with ourtax agreement with Continental, to the extent we generate taxable income sufficient to realize the additional tax deductions, weare required to pay Continental a percentage of the amount of tax savings actually realized, excluding the effect of any losscarrybacks.  We are required to pay Continental 100% of the first third of the anticipated tax benefit, 90% of the secondthird, and 80% of the last third.  However, if the tax benefits are not realized by the end of 2018, we will be obligated topay Continental 100% of any benefit realized after that date.  Since these future payments depend solely on our ability togenerate sufficient taxable income to realize the deferred tax assets associated with these tax benefits, they are recorded as anobligation to Continental within our deferred tax accounts, and the portion we may retain in the future is offset by a valuationallowance.  At the IPO, the valuation allowance and the obligation to Continental offset the step-up in basis of assets in ourlong-term deferred tax asset account.  During the six months ended June 30, 2004, we made net payments to Continental underthe tax agreement of approximately $39.6 million.  No payment was made to Continental under the agreement during the sixmonths ended June 30, 2003.

            The tax agreement requires Continental to reimburse us forany net increase in our cash tax payments resulting from any decreased availability of net operating loss carryovers related to thebasis increase at the time our payment occurs.  The resulting receivable and/or payable is recorded within the deferred taxasset account since its performance is dependent on our ability to generate taxable income.

            We believe that our IPO created a change in ownershiplimitation on the utilization of our federal carryforward tax attributes, primarily net operating losses.  Section 382 ofthe Internal Revenue Code limits our utilization of these attributes to offset up to approximately $43.3 million ofpost-change taxable income per year.  This limitation did not have any impact on our financial condition for the six monthsended June 30, 2004 or 2003.

            Our tax agreement increases our exposure toContinental’s financial condition.  If it is determined that any of the tax benefits related to the basis increaseshould not have been available at the time of utilization and, as a result, we are required to pay additional taxes and/orpenalties, then we could be adversely affected if Continental were insolvent, bankrupt, or otherwise unable to pay us under itsindemnification for these amounts.

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**Note 5 – Commitments and Contingencies**

***Purchase Commitments and Contingencies***

******

            As shown in the following table, our aircraft fleet consistedof 235 regional jets at June 30, 2004.  Our aircraft purchase commitments (orders) and aircraft options as of June 30, 2004are also shown below.

| **Type**                                          |        | **Total Aircraft** |              | **Leased** |              | **Firm Orders** |              | **Options** |              | **Seats in Standard Configuration** |
|---------------------------------------------------|--------|--------------------|--------------|------------|--------------|-----------------|--------------|-------------|--------------|-------------------------------------|
|                                                   |        |                    |    |            |    |                 |    |             |    |                                     |
| Regional Jets:                                    |   |                    |              |            |              |                 |              |             |              |                                     |
|   ERJ-145XR.............                |        | 65                 |              | 65         |              | 39              |              | 100         |              | 50                                  |
|   ERJ-145.................              |        | 140                |              | 140        |              | —         |              | —     |              | 50                                  |
|   ERJ-135.................              |        | 30                 |              | 30         |              | —         |              | —     |              | 37                                  |
|                                                   |        |                    |              |            |              |                 |              |             |              |                                     |
|     Total.................... |        | 235                |              | 235        |              | 39              |              | 100         |              |                                     |
|                                                   |        |                    |              |            |              |                 |              |             |              |                                     |

            We anticipate taking delivery of 21 Empresa Brasileira deAeronautica S.A. (“Embraer”) regional jet aircraft in 2004 (11 ****of which were delivered during the six monthsended June 30, 2004) and the remainder of our 39 firm orders through the second quarter of 2006. 

            As of June 30, 2004, the estimated aggregate cost of our firmcommitments for Embraer regional jets was approximately $0.8 billion, which relates to delivery of aircraft through 2006.  Inaddition, we expect to purchase up to five spare engines for approximately $13.7 million to support our existing aircraft and theremaining aircraft on firm order. ****We anticipate the delivery of ****these spare engines through December 2005.  Wealso have options to purchase an additional 100 Embraer regional jets.  During the first quarter of 2004, we extended theexercise period of these options from 2005 through 2008 to 2006 through 2009 at no cost to us.  We will not have anyobligation to take any of the aircraft under firm commitments if they are not financed by a third party and leased to eitherContinental or us.  We currently have no financing in place for the five spare engines and have no obligation to acquire fourof the five engines if for any reason the firm order aircraft are not delivered to us.  We have a contractual obligation topurchase one of the five spare engines, as a replacement for the engine damaged in June 2004 (see below).

            In June 2004, one of our engines under operating lease withContinental was damaged beyond repair while the aircraft was on the ground.  Our preliminary investigation indicates that thecost of the engine may not be recoverable under insurance or the manufacturers’ warranties.  As a result, we recorded$1.8 million in other operating expense to satisfy our obligations under our operating lease with Continental and recorded a $0.3million charge to our maintenance, materials and repairs expense.

**           ** In May 2004, we signed a letter of intent withRolls-Royce Corporation to extend the coverage of our existing engine maintenance contract to include line replaceable units andminor foreign object damage for our existing aircraft and the remaining aircraft on firm order.  Rolls-Royce is providingengine maintenance services for us in exchange for a cost-per-flight-hour charge.  We intend to execute a binding agreementduring the third quarter, and the terms are expected to be retroactive to May 2004. Therefore, as of May 2004, we began to accountfor our maintenance, materials and repairs expense in accordance with the terms of this letter of intent.

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****

***Collective Bargaining Agreements***

            Approximately 67% of our employees are covered by collectivebargaining agreements.  Each of these agreements is under negotiation or becomes amendable in 2004.  We continue tobelieve that mutually acceptable agreements can be reached with all of these employee groups, although the ultimate outcome ofthese negotiations is unknown at this time. 

****

            As the contracts become amendable, we accrue for any expectedincrease in cost related to these contracts.  However, the actual outcome could differ from these estimates.

***General Guarantees and Indemnifications***

            In June 2004, we recorded an additional $2.0 million in otheroperating expenses relating to a claim by Continental for indemnification under the capacity purchase agreement for costs incurredduring the post-retirement storage of certain turboprop aircraft engines.  The total expense recorded in the six months endedJune 30, 2004 was $4.0 million, which was paid to Continental in June 2004 as full and final satisfaction of this matter. 

            Additionally, we are party to many contracts in which it iscommon for us to agree to indemnify third parties for tort liabilities that arise out of or relate to the subject matter of thecontract.  In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnifiedparties, but typically excludes liabilities caused by gross negligence or willful misconduct.  We cannot estimate thepotential amount of future payments under these indemnities until events arise that would trigger a liability under theindemnities.  However, we expect to be covered by insurance for a material portion of these liabilities, subject todeductibles, policy terms and conditions.

**Item 2.  Management's Discussion and Analysis of Financial Condition and Results ofOperations.**

            The following discussion contains forward-looking statements.Statements including words such as “believes”, “intends”, “plans”, “anticipates”,“estimates”, “projects”, “expects” or similar expressions represent forward-looking statementsbased on management’s expectations in light of facts known to management on the date this report is filed with the SEC. Specifically, statements regarding our future results of operations, operating costs, business prospects, growth and capitalexpenditures, including plans with respect to our fleet, are forward-looking statements.  These statements reflect our plansand assumptions about future events and are subject to uncertainties, many of which are outside our control.  Importantfactors that could cause actual results to differ materially from the expectations expressed or implied in the forward-lookingstatements include known and unknown risks.  Some of the known risks that could significantly impact our revenues, operatingresults, and capacity include, but are not limited to: our dependence on our capacity purchase agreement with Continental Airlines,Inc. (“Continental”); our dependence on Continental’s financial and operational strength; our high leverage;labor costs and relations, including the results of union contract negotiations; flight disruptions as a result of operationalmatters; our ability to implement our growth strategy; certain tax matters; the costs and other effects of enhanced securitymeasures and other possible Federal Aviation Administration (“FAA”) requirements; competition and industry conditions;and the seasonal nature of the airline business. For further discussion of these risks, please see the “Risk Factors”section in our 2003 annual report on Form 10-K.  The statements in this report are made as of July 21, 2004, and the eventsdescribed in the forward-looking statements might not occur or might occur to a materially different extent than described in thisreport.  We undertake no duty to update or revise any of our forward-looking statements, whether as a result of newinformation, future events or otherwise.

            Our website address is www.expressjet.com.  All our SECfilings are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish themto, the SEC.

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**OVERVIEW**

****

***Current***

******

**            Fleet. ** During the three months ended June 30,2004, we took delivery of six new ERJ-145XR aircraft.  These 50-seat regional jets are capable of flights of approximately1,500 miles.  With these deliveries, our current fleet consists of 65 ERJ-145XR, 140 ERJ-145 and 30 ERJ-135 aircraft. Our regional jets’ operational capabilities allow Continental to extend service from its major hubs to more distant andsmaller communities.  Our block hours increased 26.9% during the three months ended June 30, 2004, as compared to the sameperiod in 2003.

            **Labor. ** Approximately 67% of our employees,representing four distinct groups, are covered by collective bargaining agreements.  Each of these agreements is undernegotiation or becomes amendable in 2004.  The following describes the status of our current or anticipated negotiations witheach of our employee groups covered by collective bargaining agreements:

| · |      | The collective bargaining agreement with our pilots, represented by the Air Line Pilots Association, International(“ALPA”), became amendable in October 2002.  We began negotiations with ALPA in July 2002 and, jointly with ALPA,applied for federal mediation in December 2003.  Our negotiations are ongoing with ALPA, assisted by the mediator, with nospecified deadlines.                                                                                                                      |
|----------|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · |                          | The collective bargaining agreement with our mechanics, represented by the International Brotherhood of Teamsters(“Teamsters”), became amendable in February 2004. We began negotiations with the Teamsters in September 2003 andjointly applied for a federal mediator in December 2003.  A tentative agreement was reached in April 2004, but was rejected bythe union members.  Negotiations have resumed and are ongoing with the Teamsters, assisted by the mediator, with no specifieddeadlines. |
| · |                          | The collective bargaining agreement with our dispatchers, represented by the Transport Workers Union of America(“TWU”), became amendable in July 2004.  A tentative agreement was reached in June 2004, but was rejected by theunion members.  Negotiations are scheduled to resume by the end of July.                                                                                                                                                                                                |
| · |                          | The collective bargaining agreement with our flight attendants, represented by the International Association of Machinists andAerospace Workers, will become amendable in December 2004.  We plan to begin negotiations with our flight attendants in thethird quarter of 2004.                                                                                                                                                                                                                                         |

As the agreements become amendable, we accrue for any expected increase in cost related to these agreements.  However, theactual outcome could differ from these estimates.

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****

            **Relationship with Continental.**   Ouradministrative services agreement with Continental expired in May 2004 and we are working with them to implement a long-termagreement.  Meanwhile, we continue to operate under the expired agreement.  As expenses related to our administrativeservices agreement are fully-reconciled costs under our capacity purchase agreement, any change in such expenses will impact ourpre-tax income as our revenue is based on our underlying costs; however, any change will have a minimal impact on our operatingmargin.

            In June 2004, we recorded an additional $2.0 million in otheroperating expenses relating to a claim by Continental for indemnification under the capacity purchase agreement for costs incurredduring the post-retirement storage of certain turboprop aircraft engines.  The total expense recorded in the six months endedJune 30, 2004 was $4.0 million, which was paid to Continental in June 2004 as full and final satisfaction of this matter. 

            In June 2004, one of our engines under operating lease withContinental was damaged beyond repair while the aircraft was on the ground.  Our preliminary investigation indicates that thecost of the engine may not be recoverable under insurance or the manufacturers’ warranties.  As a result, we recorded$1.8 million in other operating expense to satisfy our obligations under our operating lease with Continental and recorded a $0.3million charge to our maintenance, materials and repairs expense. 

            Continental currently owns 30.8% of our outstanding commonstock and the sole share of our special voting preferred stock.  On July 15, 2004, the two remaining Continental executives onour board of directors resigned, and Continental elected two other directors to fill these vacancies pursuant to its rights underour special voting preferred stock.  Under the special voting preferred stock, Continental has elected, in total, threedirectors to our board of directors, and thus can influence many of our corporate decisions. 

***Outlook***

******

**            Our Dependence on Continental. ** We receivesubstantially all of our revenue from Continental under our capacity purchase agreement, pursuant to which Continental purchasesall of our capacity and pays us specified rates per scheduled block hour by aircraft, together with certain incentive payments andreimbursements.  Although the domestic economy is showing signs of recovery, the financial outlook for the domestic networkcarriers has worsened in the first six months of 2004 due to unprecedented high fuel prices, fierce competition from low-costcarriers, unpredictable labor negotiations, increased security costs and significant pension liabilities.

            Despite its previously announced cost-cutting andrevenue-generating measures, Continental has reported that its cost structure may not be competitive over the long-term and expectsto incur a substantial loss in 2004.  In addition, on several occasions since September 11, 2001, Continental’s creditratings have been downgraded, and further downgrades are possible in the future.  Absent adverse factors due to externalinfluences such as additional terrorist attacks, hostilities involving the United States or further significant increases in fuelprices, Continental believes that its current liquidity will be sufficient to fund its current operations through 2005. However, beyond such time, if the current network carrier financial environment continues and/or Continental cannot implementadditional revenue-generating, cost-cutting and other cash-generating measures beyond those previously announced, Continental maynot be able to maintain adequate liquidity for its operations and debt service beyond 2005.

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            The factors described above could cause Continental tofurther downsize its operations and further reduce expenses.  Under the capacity purchase agreement, Continental has theability to reduce its level of commitment and/or utilization of our aircraft.  Currently, Continental can provide, at anytime, 12-months’ notice of its intention to reduce the number of regional jets covered by the agreement.  Under thisprovision, Continental is entitled to decline capacity with respect to any regional jets subject to our firm orders that EmpresaBrasileira de Aeronautica S.A. (“Embraer”) has not yet delivered to us as of the effective date and up to 25%, over anyrolling three-year period, of our delivered regional jets that have been delivered under an agreed methodology.  IfContinental reduces its commitment and/or utilization of our aircraft under the capacity purchase agreement, our results ofoperations and financial condition could be adversely affected.  There can be no assurance that such circumstances will notoccur in the future.

**            Rate Resetting Process under the Capacity PurchaseAgreement. ** In July 2004, we began the process to renegotiate with Continental our billable block hour rates for 2005under the capacity purchase agreement.  Under the capacity purchase agreement, we are entitled to receive payment for eachscheduled block hour calculated using a formula designed to provide us with an operating margin of approximately 10% before takinginto account variations in some costs and expenses that are generally controllable by us.  In light of market conditionscurrently affecting the airline industry, we expect Continental to seek lower rates from us during the rate resettingprocess.  We continue to pursue a strategy of providing low-cost regional jet service, and will work with Continental toidentify ways to lower our costs.  If this occurs, our results of operations could be materially adversely affected, since ouroperating revenue is determined based on our underlying costs.  There can be no assurance that such circumstances will notoccur.  If we cannot reach an agreement with Continental on the new rates, any disagreement will be submitted to a third partyfor arbitration. 

            **Operating Expenses. ** Although a significantportion of our costs, including those relating to fuel, aircraft rent, a majority of our regional jet engine maintenance,passenger-related facility rent, administrative fees from Continental and ground handling expenses, are reimbursed by Continentalat actual cost plus a 10% margin under the capacity purchase agreement, we are at risk for certain other costs such as labor andrelated fringe benefit costs, other maintenance and general and administrative costs.  We are currently engaged in labornegotiations with our pilots, mechanics and dispatchers and cannot, at this time, predict the outcome of these negotiations.

**            Our Liquidity. ** As of June 30, 2004, we had$236.7 million in cash, excluding $3.2 million in restricted cash, and our cash flows from operations were sufficient to cover ourcapital resource and liquidity requirements.  As our collective bargaining agreements become amendable (as described above),we accrue for any expected increase in cost related to these agreements.  When the agreements are ratified and becomeeffective, our cash flows from operations may significantly decrease as a result of entering into and settling obligations underthese agreements; however, we believe these settlements will not adversely impact our ability to maintain adequateliquidity. 

**            Business Strategy. ** We believe that maintainingour low cost structure is essential to preserving our relationship with Continental and pursuing future opportunities.  Inaddition, we continue to analyze opportunities to leverage our 50-seat regional jets and the feasibility of expanding our fleet toinclude aircraft types with different seating capacities.  Although conditions continue to deteriorate in the airlineindustry, we believe that positive opportunities will also present themselves and our goal is to be prepared to exploit them whenpossible.

            For additional discussion of the above factors, please seethe “Overview” section of “Management’s Discussion and Analysis of Financial Conditions and Results ofOperations” in our 2003 10-K. 

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**RESULTS OF OPERATIONS**

            The following discussion provides an analysis of our resultsof operations and reasons for material changes therein for the three and six months ended June 30, 2004 as compared to thecorresponding period ended June 30, 2003.

***Comparison of Three Months Ended June 30, 2004 to Three Months Ended June 30, 2003***

            The following table sets forth information regarding ouroperating expense components.  Individual operating expense components are expressed as a percentage of our total operatingrevenues and as cents per available seat mile (“ASM”).

|                                                              |   | **Three Months Ended June 30,** |
|--------------------------------------------------------------|---|---------------------------------|
|                                                              |   | ****                            |
|                                                              |   | **2004**                        |  |  | **2003** |
|                                                              |   | ****                            |  |  | **** |
|                                                              |   | **Amount**                      |  | **Percent of Revenue** |  | **Cents per ASM** |  |  | **Amount** |  | **Percent of Revenue** |  | **Cents per ASM** |  |
|                                                              |   | ****                            |  | **** |  | **** |  |  | **** |  | **** |  | **** |  |
|                                                              |   | (In thousands)                  |  |  |  |  |  |  |  |  | (In thousands) |  |  |  |  |  |  |
| Wages, salaries and related costs..................          | $ | 77,285                          |   |   | 20.8 | % |   | 2.97 |   |   | $ | 68,805 |   |   | 21.5 | % |   | 3.32 |   |
| Aircraft rentals...............                              |   | 69,590                          |  |  | 18.8 | % |  | 2.67 |  |  |  | 61,257 |  |  | 19.1 | % |  | 2.96 |  |
| Aircraft fuel and related taxes............................  |   | 46,893                          |  |  | 12.6 | % |  | 1.80 |  |  |  | 37,919 |  |  | 11.8 | % |  | 1.83 |  |
| Maintenance, materials and repairs....................       |   | 36,763                          |  |  | 9.9 | % |  | 1.41 |  |  |  | 33,237 |  |  | 10.4 | % |  | 1.60 |  |
| Ground handling.............                                 |   | 26,625                          |  |  | 7.2 | % |  | 1.02 |  |  |  | 22,004 |  |  | 6.9 | % |  | 1.06 |  |
| Other rentals and landing fees.............................. |   | 22,159                          |  |  | 6.0 | % |  | 0.85 |  |  |  | 24,182 |  |  | 7.5 | % |  | 1.17 |  |
| Outside services............                                 |   | 6,638                           |  |  | 1.8 | % |  | 0.25 |  |  |  | 6,611 |  |  | 2.1 | % |  | 0.32 |  |
| Depreciation and amortization...................             |   | 5,834                           |  |  | 1.6 | % |  | 0.23 |  |  |  | 4,851 |  |  | 1.5 | % |  | 0.23 |  |
| Aircraft related and other insurance......................   |   | 2,521                           |  |  | 0.7 | % |  | 0.10 |  |  |  | 1,075 |  |  | 0.3 | % |  | 0.05 |  |
| Security fee reimbursement...............                    |   | —                         |  |  | — |  |  | — |  |  |  | (3,034 | ) |  | (0.9 | %) |  | (0.15 | ) |
| Other operating expenses.................................... |   | 26,390                          |  |  | 7.1 | % |  | 1.02 |  |  |  | 18,325 |  |  | 5.7 | % |  | 0.89 |  |
|                                                              |   |                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                              | $ | 320,698                         |  |  | 86.5 | % |  | 12.32 |  |  | $ | 275,232 |   |  | 85.9 | % |  | 13.28 |  |
|                                                              |   |                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

            Although most of the individual expense components haveincreased during the three months ended June 30, 2004, as compared to the same period in 2003, the table above demonstratesincreased efficiencies in our operations based on cents per ASM.  We have grown by 25.6%, as measured by ASMs, while our costshave not increased ratably as we have continued to operate more efficiently.

***General***

            We currently receive substantially all of our revenue fromContinental under our capacity purchase agreement, pursuant to which Continental purchases all of our capacity and pays usspecified rates per scheduled block hour together with certain incentive payments and reimbursements.   Our 13.5% operatingmargin during the second quarter included the benefits of productivity savings related to labor and $3.1 million in performanceincentive payments derived from the capacity purchase agreement.  The performance incentive payments were made to us primarilydue to our high controllable completion factor (excluding weather and air traffic control cancellations) of 99.9% for the threemonths ended June 30, 2004 as compared to our historical benchmark controllable completion factor of 98.8%.

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            Under the capacity purchase agreement, a substantial portionof our costs are reconciled for differences between our actual costs and the estimated costs included in our billable block hourrates to allow us to operate within a defined operating margin range of 8.5% to 11.5%.  During the three months ended June 30,2004, our actual costs were lower than the estimates used in the billable block hour rates; consequently, our operating margin(before reconciliation payments) exceeded 11.5%.  The favorable results were primarily due to savings in maintenance, materialand repairs, passenger servicing costs and other operating expenses.  Consequently, during the three months ended June 30,2004 and 2003 we made reconciliation payments to Continental totaling $18.1 million and $6.1 million, respectively.  As aresult of the rate resetting process for 2005 rates, we expect our future operating margin, excluding incentives, to be closer toour target contractual operating margin of 10%.

***Operating Expenses***

            As we have grown, our work force has grown.  This largerwork force, combined with increases in wage rates under some of our collective bargaining agreements, increased our wages, salariesand related costs by $7.0 million during the three months ended June 30, 2004 as compared to the same period in 2003.  Inaddition, our employee benefit costs for the three months ended June 30, 2004, as compared to the same period in 2003, increased byapproximately $1.4 million.

            We are currently engaged in labor negotiations with ALPA,Teamsters and TWU as discussed previously.  As our collective bargaining agreements become amendable, we accrue for anyexpected increase in cost related to these agreements.  However, the actual outcome could differ from these estimates.

            The increase in aircraft fuel expense and related taxesduring the three months ended June 30, 2004, as compared to the same period in 2003, was due to a 23.6% increase in fuelconsumption as a result of higher block hours flown.  Under the capacity purchase agreement and the related fuel purchaseagreement with Continental, we incur a fuel price and fuel tax equal to the lower of the actual cost of fuel and fuel tax or theagreed-upon caps.  Our caps on fuel and fuel tax are 66.0 cents and 5.2 cents per gallon, respectively, for both 2004 and2003.  Until the termination of the capacity purchase agreement and the fuel purchase agreement, our future fuel expenserelated to all aircraft covered under the capacity purchase agreement will be the lower of the actual cost of fuel and fuel tax or71.2 cents per gallon.** 

            Approximately $7.2 million of the increase in maintenance,materials and repairs during the three months ended June 30, 2004, as compared to the same period in 2003, was due to a 23.4%increase in flight hours and a 11.5% increase in rate per flight hour related to our power-by-the-hour contracts.  The rateper flight hour increase is mainly attributed to a higher number of power-by-the-hour contracts in place as of June 30, 2004, ascompared to June 30, 2003.  As a result of increased coverage under our power-by-the-hour contracts, our airframe repairs andengine repair costs decreased by approximately $3.1 million.  The remaining change in maintenance, materials and repairs wasdue to an increase in general maintenance expense and overhead to support the continuing growth of our fleet.

            In May 2003, we received $3.0 million in reimbursements ofsecurity fees under the Emergency Wartime Supplemental Appropriation Act of 2003 (the “Wartime Act”).  However, asthe reimbursements we received under this relief package represent fully reconciled costs under the capacity purchase agreement, wedistributed 100% of the funds received to Continental.  No such reimbursement was received in 2004. 

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            The increase in other operating expenses is primarily due tothe following:

| · |       | the additional $2.0 million settlement relating to the post-retirement storage of certain turboprop engines as describedpreviously;       |
|----------|--------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|
| · |                                | the $1.8 million charge to account for an engine that was damaged beyond repair as described previously;                                  |
| · |                                | a $2.3 million increase in property taxes primarily as a result of growth in our fleet; and                                               |
| · |                                | a $1.1 million increase in passenger screening fees primarily because we no longer receive relief for security fees under theWartime Act. |

***Nonoperating Expenses***

            Our interest expense primarily relates to our loan agreementwith Export Development Canada,  (“EDC”), our Series A Mandatorily Redeemable Preferred Stock, our note payable toContinental and our 4.25% senior convertible notes due 2023.  The increase in interest expense during the three months endedJune 30, 2004, as compared to the same period in 2003, was primarily due to our interest expense of $1.5 million related to oursenior convertible notes.  This increase was partially offset by a decrease in interest expense related to our note payable toContinental as the balance decreased from $299.5 million at April 1, 2003 to $193.2 million at April 1, 2004. 

******

***Comparison of Six Months Ended June 30, 2004 to Six Months Ended June 30, 2003***

            The following table sets forth information regarding ouroperating expense components.  Individual operating expense components are expressed as a percentage of our total operatingrevenues and as cents per ASM.

|                                                              |   | **Six Months Ended June 30,** |
|--------------------------------------------------------------|---|-------------------------------|
|                                                              |   | ****                          |
|                                                              |   | **2004**                      |  |  | **2003** |
|                                                              |   | ****                          |  |  | **** |
|                                                              |   | **Amount**                    |  | **Percent of Revenue** |  | **Cents per ASM** |  |  | **Amount** |  | **Percent of Revenue** |  | **Cents per ASM** |  |
|                                                              |   | ****                          |  | **** |  | **** |  |  | **** |  | **** |  | **** |  |
|                                                              |   | (In thousands)                |  |  |  |  |  |  |  |  | (In thousands) |  |  |  |  |  |  |
| Wages, salaries and related costs..................          | $ | 156,474                       |   |   | 21.3 | % |   | 3.13 |   |   | $ | 135,297 |   |   | 21.6 | % |   | 3.52 |   |
| Aircraft rentals...............                              |   | 137,201                       |  |  | 18.7 | % |  | 2.74 |  |  |  | 118,706 |  |  | 18.9 | % |  | 3.09 |  |
| Aircraft fuel and related taxes............................  |   | 90,045                        |  |  | 12.2 | % |  | 1.80 |  |  |  | 70,718 |  |  | 11.3 | % |  | 1.84 |  |
| Maintenance, materials and repairs....................       |   | 74,815                        |  |  | 10.2 | % |  | 1.50 |  |  |  | 63,149 |  |  | 10.1 | % |  | 1.64 |  |
| Ground handling.............                                 |   | 51,140                        |  |  | 7.0 | % |  | 1.02 |  |  |  | 42,210 |  |  | 6.7 | % |  | 1.10 |  |
| Other rentals and landing fees.............................. |   | 42,650                        |  |  | 5.8 | % |  | 0.85 |  |  |  | 47,716 |  |  | 7.6 | % |  | 1.24 |  |
| Outside services............                                 |   | 16,677                        |  |  | 2.3 | % |  | 0.33 |  |  |  | 16,110 |  |  | 2.6 | % |  | 0.42 |  |
| Depreciation and amortization...................             |   | 11,596                        |  |  | 1.6 | % |  | 0.23 |  |  |  | 9,646 |  |  | 1.5 | % |  | 0.25 |  |
| Aircraft related and other insurance......................   |   | 4,950                         |  |  | 0.7 | % |  | 0.10 |  |  |  | 2,089 |  |  | 0.3 | % |  | 0.06 |  |
| Security fee reimbursement...............                    |   | —                       |  |  | — |  |  | — |  |  |  | (3,034 | ) |  | (0.5 | %) |  | (0.08 | ) |
| Other operating expenses.................................... |   | 50,561                        |  |  | 6.8 | % |  | 1.01 |  |  |  | 35,825 |  |  | 5.8 | % |  | 0.94 |  |
|                                                              |   |                               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                              | $ | 636,109                       |  |  | 86.6 | % |  | 12.71 |  |  | $ | 538,432 |   |  | 85.9 | % |  | 14.02 |  |
|                                                              |   |                               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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            Although most of the individual expense components haveincreased during the six months ended June 30, 2004, as compared to the same period in 2003, the table above demonstrates increasedefficiencies in our operations based on cents per ASM.  We have grown by 30.3%, as measured by ASMs, while our costs have notincreased ratably as we have continued to operate more efficiently.

***General***

            Our 13.4% operating margin during the six months ended June30, 2004 included the benefits of productivity savings related to labor and $6.5 million in performance incentive payments derivedfrom the capacity purchase agreement.  The performance incentive payments were made to us primarily due to our highcontrollable completion factor (excluding weather and air traffic control cancellations) of 99.8% for the six months ended June 30,2004 as compared to our historical benchmark controllable completion factor of 98.7%.

            During the six months ended June 30, 2004, our actual costswere lower than the estimates used in the block hour rates; consequently, our operating margin (before reconciliation payments)exceeded 11.5%.  The favorable results were primarily due to savings in maintenance, material and repairs, passenger servicingcosts and other operating expenses.  Consequently, during the six months ended June 30, 2004 and 2003 we made reconciliationpayments to Continental totaling $30.3 million and $10.7 million, respectively. 

***Operating Expenses***

            As we have grown, our work force has grown.  This,combined with increases in wage rates under some of our collective bargaining agreements, increased our wages, salaries and relatedcosts by $15.2 million during the six months ended June 30, 2004 as compared to the same period in 2003.  In addition, weincurred approximately $5.7 million higher employee benefit costs during the first half of 2004, as compared to the same period in2003, primarily due to rising healthcare costs.

            The increase in aircraft fuel expense and related taxesduring the six months ended June 30, 2004 as compared to the same period in 2003 was due to a 27.4% increase in fuel consumption asa result of higher block hours flown.

            Approximately $14.3 million of the increase in maintenance,materials and repairs during the six months ended June 30, 2004, as compared to the same period in 2003, was due to a 27.0%****increase in flight hours and a 10.8% increase in rate per flight hour related to our power-by-the-hour contracts.  Theremaining change in maintenance, materials and repairs was due to an increase in general maintenance expense to support thecontinuing growth of our fleet.

The increase in other operating expenses is primarily due to the following:

| · |      | the $4.0 million charge for the settlement of a claim by Continental for indemnification under the capacity purchase agreementas described previously;                               |
|----------|--------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · |                          | a $3.7 million increase in property taxes primarily as a result of growth in our fleet;                                                                                              |
| · |                          | a $3.0 million increase in crew related charges such as per diem and hotel cost as a result of increased flight operations;                                                          |
| · |                          | the $1.8 million charge to satisfy our obligations under our operating lease with Continental for a damaged engine as describedpreviously;                                           |
| · |                          | a $1.4 million increase in passenger screening fees primarily because we no longer receive relief for security fees under theWartime Act; and                                        |
| · |                          | a $1.0 million increase in passenger related service costs such as interrupted trip and baggage handling expenses due to theseasonal weather conditions at Continental’s hubs. |

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***Nonoperating Expenses***

            The increase in interest expense during the six months endedJune 30, 2004 as compared to the same period in 2003 was primarily due to our interest expense of $2.9 million related to oursenior convertible notes.  This increase was partially offset by a decrease in interest expense related to our note payable toContinental as the balance decreased from $325.5 million at January 1, 2003 to $193.2 million at January 1, 2004. 

***Certain Statistical Information***

An analysis of certain statistical information for the periods indicated is as follows:

|                                                                      |        | **Three Months Ended June 30,** |   |                                |             |        |                          | **Six Months Ended June 30,** |      |                          |             |        |
|----------------------------------------------------------------------|--------|---------------------------------|---|--------------------------------|-------------|--------|--------------------------|-------------------------------|------|--------------------------|-------------|--------|
|                                                                      |        | ****                            |   |                                |             |        |                          | ****                          |      |                          |             |        |
|                                                                      |        | **2004**                        |   |                                | **2003**    |        |                          | **Increase/ (Decrease)**      |      | **2004**                 |             |        | **2003** |  |  | **Increase/ (Decrease)** |
|                                                                      |        |                                 |   |                                |             |        |                          |                               |      |                          |             |        |  |  |  |  |
| Revenue passenger miles (millions) (1)...............                |        | 1,906                           |   |                                | 1,456       |   |                          | 30.9                          | %    |                     | 3,448       |   |  | 2,534 |   |  | 36.1 | % |
| Available seat miles (millions) (2).........................         |   | 2,603                           |   |       | 2,073       |        |                          | 25.6                          | %    |                          | 5,003       |        |       | 3,840 |  |  | 30.3 | % |
| Passenger load factor (3)....................................        |        | 73.2                            | % |                                | 70.2        | %      |      | 3.0                           | pts  |      | 68.9        | %      |  | 66.0 | % |       | 2.9 | pts |
| Block hours (4)..................................................... |        | 184,055                         |   |                                | 145,008     |        |                          | 26.9                          | %    |                          | 353,156     |        |  | 273,812 |  |  | 29.0 | % |
| Departures.......................................................... |        | 101,588                         |   |                                | 88,806      |        |                          | 14.4                          | %    |                          | 196,889     |        |  | 168,454 |  |  | 16.9 | % |
| Operating cost per ASM (cents)........................               |        | 12.32                           |   |                                | 13.28       |        |                          | (7.2                          | %)   |                          | 12.71       |        |  | 14.02 |  |  | (9.3 | %) |
| Operating cost per block hour (dollars)..............                |        | 1,742                           |   |                                | 1,898       |        |                          | (8.2                          | %)   |                          | 1,801       |        |  | 1,966 |  |  | (8.4 | %) |
| Average fuel cost per ASM (cents) (5)...............                 |        | 1.80                            |   |                                | 1.83        |        |                          | (1.6                          | %)   |                          | 1.80        |        |  | 1.84 |  |  | (2.2 | %) |
| Average price per gallon of fuel (cents) (5) .......                 |        | 71.2                            |   |                                | 71.2        |        |                          | —                       |      |                          | 71.2        |        |  | 71.2 |  |  | — |  |
| Fuel gallons consumed (millions)........................             |        | 65.9                            |   |                                | 53.3        |        |                          | 23.6                          | %    |                          | 126.5       |        |  | 99.3 |  |  | 27.4 | % |
| Average length of aircraft flight (miles)..............              |        | 526                             |   |                                | 482         |        |                          | 9.1                           | %    |                          | 521         |        |  | 471 |  |  | 10.6 | % |
| Actual aircraft in fleet at end of period...............             |        | 235                             |   |                                | 212         |        |                          | 10.8                          | %    |                          | 235         |        |  | 212 |  |  | 10.8 | % |
| Average daily utilization of each aircraft (6)........               |        | 8 hr 44 min                     |   |                                | 7 hr 45 min |        |                          | 12.6                          | %    |                          | 8 hr 29 min |        |  | 7 hr 34 min |  |  | 12.0 | % |
| Controllable completion factor (7).........................          |        | 99.9                            | % |                                | 99.9        | %      |                          | —                       |      |                          | 99.8        | %      |  | 99.8 | % |  | — |  |
| Completion factor................................................    |        | 98.3                            | % |                                | 99.2        | %      |                          | (0.9                          | pts) |                          | 98.5        | %      |  | 98.4 | % |  | 0.1 | pts |

| (1) |    | Revenue passenger miles is the number of scheduled miles flown by revenue passengers.                                                                                                                                                                                                                     |
|-----|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |              | Available seat miles represent the number of seats available for passengers multiplied by the number of scheduled miles thoseseats are flown.                                                                                                                                                             |
| (3) |              | Passenger load factor is revenue passenger miles divided by available seat miles.                                                                                                                                                                                                                         |
| (4) |              | Block hours are the hours from gate departure to gate arrival.                                                                                                                                                                                                                                            |
| (5) |              | Fuel cost used in the calculations includes cost of fuel and related fuel tax.  We incur fuel expense andfuel tax equal to the lower of the actual cost or an agreed-upon cap of 66.0 cents per gallon and 5.2 cents per gallon,respectively, based on our fuel purchase agreement with Continental. |
| (6) |              | Average daily utilization of each aircraft is the average number of block hours per day that an aircraft in revenue service isoperated (from gate departure to gate arrival).                                                                                                                             |
| (7) |              | Controllable completion factor is the actual number of completed flights, plus flights cancelled due to weather and air trafficcontrol, divided by the number of scheduled flights.                                                                                                                       |

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******

***Future Costs***

            We remain committed to controlling our costs throughidentifying and executing cost saving initiatives; however, we believe that our costs may still be adversely affected in the futureby:

| · |     | changes in wages, salaries and related fringe benefit costs.  We are currently in labor negotiations with our pilots,mechanics and dispatchers, and our collective bargaining agreement with our flight attendants becomes amendable in December2004.  At this time we cannot predict the outcome of these negotiations.  Additionally, we believe that our fringebenefit costs may change due to rising health care costs; |
|----------|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · |                    | changes in the costs of materials and outside services;                                                                                                                                                                                                                                                                                                                                                                                    |
| · |                    | changes in governmental regulations, insurance and taxes affecting air transportation and the costs charged for airport access,including new security requirements;                                                                                                                                                                                                                                                                        |
| · |                    | any material changes in the underlying assumptions related to the cost of providing services under the capacity purchase agreementas a result of the rate resetting process; and                                                                                                                                                                                                                                                           |
| · |     | higher aircraft ownership costs as new aircraft are delivered, to the extent these aircraft are not covered by the capacitypurchase agreement or if Continental were to declare bankruptcy or otherwise default under the current financing arrangements.                                                                                                                                                                                  |

**LIQUIDITY AND CAPITAL COMMITMENTS**

            As of June 30, 2004, we had $236.7 million in cash, cashequivalents and short-term investments, excluding $3.2 million of restricted cash, which is used as collateral for ourworkers’ compensation coverage.  Total cash, cash equivalents and short-term investments at June 30, 2004 is $46.8****million higher than at December 31, 2003.

***Operating Activities***

            Our primary source of liquidity is cash flow provided fromour operations.  For the six months ended June 30, 2004 and 2003, our operations provided $72.8 million and $107.5 millionrespectively, in cash flow.  Although our operations, as measured by ASMs, grew over 30.3%, our costs have not increasedratably due to our efforts to exploit the efficiency of our all-jet fleet with almost 100% commonality from the engines to theflight deck.  We continuously endeavor to provide cost-effective services to Continental.  However, we cannot ensure thatour future costs will not increase significantly due to factors beyond our control.  As our collective bargaining agreementsbecome amendable (as described previously), we accrue for any expected increase in cost related to these agreements.  When thecontracts are ratified and become effective, our cash flows from operations may significantly decrease as a result of settlingthese obligations, however, we believe these settlements will not adversely impact our ability to maintain adequateliquidity. 

***Investing Activities***

******

            During the six months ended June 30, 2004, we spent $11.7million on flight and ground equipment.  For the remainder of the year, we expect capital expenditures for fleet (primarilyrelating to spare parts and engines) and non-fleet (primarily relating to software application and automation projects, facilityimprovements, maintenance and ground equipment) to be approximately $20 million, in order to support our planned fleet deliveriesand the increase in our flight schedules under our capacity purchase agreement with Continental.

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***Financing Activities***

******

            During the six months ended June 30, 2004, we met all ourdebt requirements.  We also issued 36,684 shares of our common stock for the July to December 2003 purchase period, pursuantto our employee stock purchase plan.  The proceeds received were $0.5 million.  In July 2004, we issued 36,286 shares ofour common stock for the purchase period from January to June 2004 related to the plan. The proceeds received were $0.4million.

**           ** There is no covenant under any of our long-term debtagreements that restricts our ability to undertake additional debt or equity financing. 

            We expect to fund our future capital commitments throughinternally generated funds together with general financings and aircraft financing transactions.  However, there can be noassurance that sufficient financing will be available for all aircraft and other capital expenditures not covered by firm financingcommitments. 

***Purchase Commitments and Contingencies***

            As of June 30, 2004, the estimated aggregate cost of our firmcommitments for Embraer regional jets was approximately $0.8 billion, which relates to delivery of aircraft through 2006.  Inaddition, we expect to purchase up to five spare engines for approximately $13.7 million to support our existing aircraft and theremaining aircraft on firm order. ****We anticipate the delivery of ****these spare engines through December 2005.  Wealso have options to purchase an additional 100 Embraer regional jets.  During the first quarter of 2004, we extended theexercise period of these options from 2005 through 2008 to 2006 through 2009 at no cost to us.  We will not have anyobligation to take any of the aircraft under firm commitments if they are not financed by a third party and leased to eitherContinental or us.  We currently have no financing in place for the five spare engines and have no obligation to acquire fourof the five engines if for any reason the firm order aircraft are not delivered to us.  We have a contractual obligation topurchase one of the five spare engines as a replacement for the engine damaged in June 2004.

            In June 2004, one of our engines under operating lease withContinental was damaged beyond repair while the aircraft was on ground.  Our preliminary investigation indicates that the costof the engine may not be recoverable under insurance or the manufacturers’ warranties.  As a result, we recorded $1.8million in other operating expense to satisfy our obligations under our operating lease with Continental and recorded a $0.3million charge to our maintenance, materials and repairs expense. 

**           ** In May 2004, we signed a letter of intent withRolls-Royce Corporation to extend the coverage of our existing engine maintenance contract to include line replaceable units andminor foreign object damage for our existing aircraft and the remaining aircraft on firm order.  Rolls-Royce is providingengine maintenance services for us in exchange for a cost-per-flight-hour charge.  We intend to execute a binding agreementduring the third quarter, and the terms are expected to be retroactive to May 2004.  Therefore, as of May 2004, we began toaccount for our maintenance, materials and repairs expense in accordance with the terms of this letter of intent.

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****

***Aircraft Leases***

            We have significant lease and sublease obligations foraircraft that are classified as operating leases, which are not reflected as assets and liabilities on our balance sheet. These leases expire between 2013 and 2020.  As of June 30, 2004, our expected total minimum annual rental payments for thefull year 2004 under current and future non-cancelable aircraft operating leases are approximately $281.7 million, net of deferredcredits amortized.  A substantial portion of our aircraft are leased directly by Continental from third parties and subleasedby Continental to us.  If Continental were to default under these leases, our ability to retain access to the aircraft couldbe adversely affected. 

***General Guarantees and Indemnifications***

            In June 2004, we recorded an additional $2.0 million in otheroperating expenses relating to a claim by Continental for indemnification under the capacity purchase agreement for costs incurredduring the post-retirement storage of certain turboprop aircraft engines.  The total expense recorded in the six months endedJune 30, 2004 was $4.0 million, which was paid to Continental in June 2004 as full and final satisfaction of this matter.

******

            Additionally, we are party to many contracts in which it iscommon for us to agree to indemnify third parties for tort liabilities that arise out of or relate to the subject matter of thecontract.  In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnifiedparties, but typically excludes liabilities caused by gross negligence or willful misconduct.  We cannot estimate thepotential amount of future payments under these indemnities until events arise that would trigger a liability under theindemnities.  However, we expect to be covered by insurance for a material portion of these liabilities, subject todeductibles, policy terms and conditions.

******

**Item 3.  Quantitative and Qualitative Disclosure About Market Risk.**

            We have been and are subject to market risks, includingcommodity price risk (such as, to a limited extent, aircraft fuel prices) and interest rate risk.  See the Notes toConsolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31, 2003 for a descriptionof our accounting policies and other information related to these financial instruments.

***Aircraft Fuel***

            Effective January 1, 2001, we entered into our capacitypurchase agreement with Continental, which expires December 31, 2010 (subject to extensions by Continental through 2030 and itsright to terminate the agreement without cause after January 1, 2007 upon 12 months’ notice or at any time for cause), and arelated fuel purchase agreement with Continental, which terminates when the capacity purchase agreement terminates.  Underthese agreements, Continental provides all of our aircraft fuel needs for the aircraft covered by the capacity purchase agreement,and we incur fuel expense and fuel tax equal to the lower of the actual cost of the fuel or agreed-upon caps of 66.0 cents and 5.2cents per gallon, respectively.  For the six months ended June 30, 2004 and 2003, our cost of fuel was 71.2 cents per gallon,including fuel tax.  Under the capacity purchase agreement, we recover our fuel expense from Continental with a 10%margin.

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***Interest Rates***

            As of June 30, 2004, we had firm commitments to acquire 39Embraer regional jets, which we expect to lease from Continental.  Changes in interest rates could impact our actual cost forthe related leasing transactions in the future.  However, the capacity purchase agreement provides that our block hour rateswill be adjusted higher or lower to reflect any changes in our aircraft rental rates.  We also have potential interest rateexposure with respect to our loan agreement with EDC, which bears interest at the six-month LIBOR plus 1.75% per annum, and ournote payable to Continental, which bears interest at the three-month LIBOR plus 1.25% per annum capped at 5.4% in 2003 and 6.7% in2004.  Beyond 2004, there is no cap on the interest rate.  The interest rates applicable to these variable rate notes mayrise, increasing our interest expense.  The impact of market risk is estimated using a hypothetical increase in interest ratesup to the capped rate or by 100 basis points for our variable rate long-term debt.  Based on this hypothetical assumption, wewould have incurred an additional $1.1 million and $1.6 million in interest expense for the six months ended June 30, 2004 and2003.  We do not hold long-term interest-sensitive assets and therefore the value of our assets is not subject to interestrate fluctuations.  We do not purchase or hold any derivative financial instruments to protect against the effects of changesin interest rates.

            As of June 30, 2004, we estimated the fair value of our$137.2 million (carrying value) fixed-rate debt to be $128.6 million based upon quoted market prices.  Market risk isestimated as the potential increase in fair value resulting from a hypothetical 100 basis points decrease in interest rates. Based on this hypothetical assumption, the fair value of our fixed-rate debt would have been approximately $131.9 million as ofJune 30, 2004.

**Item 4.  Controls and Procedures**

*           * (a)*Evaluation of disclosure controls andprocedures*.  Based on their evaluation of our disclosure controls and procedures as of the end of the period covered bythis report, the Chief Executive Officer and Chief Financial Officer of ExpressJet Holdings, Inc. have concluded that ourdisclosure controls and procedures are effective.

            (b) *Changes in internal control over financialreporting*.  There were no changes in our internal control over financial reporting that occurred during our most recentfiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financialreporting.

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**PART II. OTHER INFORMATION**

****

**Item 1.    Legal Proceedings.**

****

               None.

****

**Item 2.    Changes in Securities, Use of Proceeds and Issuer Purchases of EquitySecurities.**

****

**              ** None.

****

**Item 3.    Defaults Upon Senior Securities.**

               None.

**Item 4.    Submission of Matters to a Vote of Security Holders.**

               The Company’s annual meeting ofstockholders was held on May 5, 2004.  Kim Fadel and L.E. Simmons were elected to our board of directors as Class IIIdirectors with 48,187,391 and 48,096,120 votes for and 496,251 and 587,522 votes withheld, respectively.  Ratification ofErnst & Young LLP as our independent auditors received 47,994,309 votes for, 653,393 votes against, 35,640 abstentions and zerobroker non-votes.

**Item 5.    Other Information.**

               None.

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**Item 6.    Exhibits and Reports on Form 8-K. **

| Exhibits |                    |                                                                                                                                                                                     |
|----------|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1      |     | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s RegistrationStatement on Form S-1) (Registration No. 333-64808). |
| 3.2      |                    | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for theyear ended December 31, 2002).                       |
| 10.1     |               | Form of Employee Restricted Stock Agreement, under the ExpressJet Holdings, Inc. 2002 Stock Incentive Plan. (1)                                                                     |
| 10.2     |                    | Form of Outside Director Restricted Stock Agreement, under the ExpressJet Holdings, Inc. 2002 Stock Incentive Plan.(1)                                                              |
| 10.3     |                    | ExpressJet Airlines, Inc. Supplemental Retirement Plan as amended and restated effective May 5, 2004. (1)                                                                           |
| 10.4     |                    | Third Amendment to the Administrative Support and Information Services Provisioning Agreement among the Company, Continental andExpressJet Airlines, Inc. dated April 8, 2004. (1)  |
| 31.1     |                    | Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer. (1)                                                                                                         |
| 31.2     |                    | Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer.  (1)                                                                                                        |
| 32.1     |                    | Section 1350 Certification by Chief Executive Officer. (2)                                                                                                                |
| 32.2     |                    | Section 1350 Certification by Chief Financial Officer. (2)                                                                                                                     |
|     |                    |                                                                                                                                                                                     |
|          |                    | (1) Filed herewith.                                                                                                                                                            |
|          |                    | (2) Furnished herewith.                                                                                                                                                        |

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| (b) |    | Reports on Form 8-K: |
|-----|--------------|----------------------|
|     |              | (i)                  |  | Report dated April 1, 2004 reporting Item 5.  “Other Events”.  No financial statements were filed with thisreport, which included a press release announcing March 2004 capacity and traffic performance. |
|     |              | (ii)                 |  | Report dated April 15, 2004 reporting Item 12.  “Results of Operations and Financial Condition”.  Nofinancial statements were filed with this report, which included a press release reporting earnings for the first quarter of 2004,and certain related non-GAAP financial measure reconciliations. |
|     |              | (iii)                |  | Report dated April 15, 2004 reporting Item 9.  “Regulation FD Disclosure”.  No financial statements werefiled with this report, which included information relating to a report on Form 8-K filed by Continental Airlines, Inc. relating toits financial outlook for 2004.  The report included information regarding Continental’s estimates of our available seatmile growth and fleet additions. |
|     |              | (iv)                 |  | Report dated May 3, 2004 reporting Item 5.  “Other Events”.  No financial statements were filed with thisreport, which included a press release announcing April 2004 capacity and traffic performance. |
|     |              | (v)                  |  | Report dated May 5, 2004 reporting Item 5.  “Other Events”. No financial statements were filed with this report,which included data presented by certain of our executive officers  at our May 5, 2004 Annual Meeting of Stockholders. |
|     |              | (vi)                 |  | Report dated June 1, 2004 reporting Item 5.  “Other Events”.  No financial statements were filed with thisreport, which included a press release announcing May 2004 capacity and traffic performance. |
|     |              | (vii)                |    | Report dated June 2, 2004 reporting Item 9.  “Regulation FD Disclosure”.  No financial statements were filedwith this report, which included information relating to a report on Form 8-K filed by Continental Airlines, Inc. relating to itsfinancial outlook for 2004.  The report included information regarding Continental’s estimates of our available seatmile growth. |
|     |              | (viii)               |  | Report dated June 16, 2004 reporting Item 9. “Regulation FD Disclosure”.  No financial statements were filed withthis report, which included information relating to the presentation by certain of our executive officers provided at the June 16,2004 Merrill Lynch Global Transportation Conference. |

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**SIGNATURES**

            Pursuant to the requirements of the Securities Exchange Actof 1934, ExpressJet Holdings, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto dulyauthorized.

|                                                                                                    |                              | **EXPRESSJET HOLDINGS, INC.**(Registrant)                                                                                                                                                    |
|---------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  Date:  July 21, 2004             |                         | **/s/ Frederick S.Cromer                           ** |
|                                                                      | Frederick S. Cromer Vice President and Chief Financial Officer (Principal Financial Officer)                                               |
|                                                                                               |                                                                                                                                            |                                                                                                                                                                                              |
|  Date:  July 21, 2004                                                                    |                         | **/s/ PhungNgo-Burns                           **     |
|                                                                      | Phung Ngo-Burns Senior Director and Controller (Principal Accounting Officer)                                                              |

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**INDEX TO EXHIBITS****OFEXPRESSJET HOLDINGS, INC.**

****

| Exhibits |                    |                                                                                                                                                                                     |
|----------|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1      |     | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s RegistrationStatement on Form S-1) (Registration No. 333-64808). |
| 3.2      |                    | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for theyear ended December 31, 2002).                       |
| 10.1     |               | Form of Employee Restricted Stock Agreement, under the ExpressJet Holdings, Inc. 2002 Stock Incentive Plan. (1)                                                                     |
| 10.2     |                    | Form of Outside Director Restricted Stock Agreement, under the ExpressJet Holdings, Inc. 2002 Stock Incentive Plan.(1)                                                              |
| 10.3     |                    | ExpressJet Airlines, Inc. Supplemental Retirement Plan as amended and restated effective May 5, 2004. (1)                                                                           |
| 10.4     |                    | Third Amendment to the Administrative Support and Information Services Provisioning Agreement among the Company, Continental andExpressJet Airlines, Inc. dated April 8, 2004. (1)  |
| 31.1     |                    | Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer. (1)                                                                                                         |
| 31.2     |                    | Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer.  (1)                                                                                                        |
| 32.1     |                    | Section 1350 Certification by Chief Executive Officer. (2)                                                                                                                |
| 32.2     |                    | Section 1350 Certification by Chief Financial Officer. (2)                                                                                                                     |
|     |                    |                                                                                                                                                                                     |
|          |                    | (1) Filed herewith.                                                                                                                                                            |
|          |                    | (2) Furnished herewith.                                                                                                                                                        |

****

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