Continental Airlines posted a surprise quarterly profit on Thursday and said travel demand, especially from lucrative business travelers, was improving modestly.

The world's fifth-largest airline reported net income of $85 million, or 60 cents per share, in the fourth quarter. A year earlier, it reported a net loss of $269 million or $2.35 per share.

Excluding special charges and a non-cash income tax benefit, Continental posted a profit of 3 cents per share. Analysts on average had expected the carrier to post a loss of 7 cents per share, according to Thomson Reuters I/B/E/S.

While we are seeing some business traffic increasing, we likely have a long and slow road to recovery, said Chief Executive Jeff Smisek in a statement.

Fourth-quarter revenue fell 8.3 percent to $3.2 billion.

The U.S. airline industry has been hammered over the past two years by the surge in oil prices in 2008 and a severe recession in 2009.

In the fourth quarter, mainline passenger revenue per available seat mile fell 10.4 percent, underscoring the difficulty Continental and other airlines have had in propping up fares in the past year.

But travel demand has slowly gathered strength in recent months, paving the way for the sector to lift ticket prices this year.

(Reporting by Deepa Seetharaman; Editing by Lisa Von Ahn and Derek Caney)