Delta Air Lines Inc said on Wednesday that revenue was showing month-to-month improvement despite a persistent reduction in premium class demand.

Chief Financial Officer Hank Halter said while the carrier still expects unit revenue to be down in the fourth quarter, the magnitude of the decline was softening from earlier this year.

Delta's unit revenue was off about 23 percent in June, he told a Morgan Stanley transportation conference.

By October, we were down in the 11-12 percent range and for the fourth quarter, our previous guidance was unit revenue down about 8 percent and we're tracking to that, Halter said.

Halter said the majority of its bookings were still for seats at the rear of an aircraft as opposed to pricier upfront cabins.

Morgan Stanley analyst William Greene raised his outlook on the airline sector to attractive, saying the industry is on the cusp of a multi-month series of catalysts that could lift shares, including lower fuel prices since early November.

In a 46-page note, he also said there was some evidence that a modest recovery in business travel could come to bear in 2010.

Delta shares surged 7.5 percent on Wednesday to $9.27 on the New York Stock Exchange, alongside a 3.5 percent jump in the Arca Airline index.

Greene said before Halter's remarks that his company felt better about recommending airlines after last week's news from US Airways Group , which announced on November 24 that it was postponing some plane deliveries to cut spending and planning to extend certain debt maturities.

If you're a believer in a recovery, you can argue for a fair amount of upside from here, Greene said.


In his remarks, Halter also said corporate sales, which represent about 20 percent of Delta's passenger revenue, were still down but the declines have moderated to the single-digit percentage range from a drop of as much as 35 percent in April/May.

The key is that demand is there, the key is that revenue is coming back on a sequential basis but it's taking time, Halter said.

The finance chief also reiterated that Delta expected total liquidity of $5 billion by the end of the year, and was still implementing cost-cutting steps that include exiting the freighter business.

Airlines have been hampered this year by reduced travel spending, a drop in trade and rising oil prices. But the International Air Transport Association said earlier this week that passenger demand for air travel rose in October even as freight demand continued to fall, boosting optimism that the industry could be on its way to a recovery.

Among carriers, United parent UAL Corp was up more than 11 percent on Wednesday, while Continental Airlines Inc jumped 4.3 percent and American Airlines parent AMR Corp gained nearly 7 percent.

(Reporting by Karen Jacobs; Editing by Dave Zimmerman and Steve Orlofsky)