Lower fuel prices helped Continental Airlines and AirTran Holdings post quarterly results above Wall Street estimates, despite lower traffic and falling demand.

But Continental said average fares to Europe were down and offered few clues on how it would ride out weak demand, leading its shares to shed earlier gains.

AirTran posted a profit against a year-earlier loss and reiterated it expects to be profitable in every quarter of 2009. Its shares surged nearly 25 percent.

Most major carriers have reported net losses this season, illustrating how economic woes have outweighed the benefits of capacity cuts and cheaper fuel. The industry has also cut fares to lure customers,

Airlines' fates are always tied to prevailing economic conditions, said Stifel Nicolaus analyst Hunter Keay. It's a classic kind of boom-and-bust industry.

Some analysts have said that results from both carriers, combined with smaller-than-expected losses from industry leader Delta Air Lines and United parent UAL Corp earlier this week, added to signs that demand could be beginning to stabilize.

Yet Bob Fornaro, chairman and chief executive of AirTran Airways, said he didn't expect demand to pick up anytime soon and thinks improved job sentiment is necessary to recovery.

We're still in a phase now where unemployment is going up and that's having an impact on future plans, Fornaro said in an interview.

This downturn is fairly deep and I think you're going to see it in travel numbers for at least six to nine months, which means I don't see it getting any better prior to the fourth quarter, Fornaro added.


Houston-based Continental reported its fifth-straight quarterly loss, citing falling business traffic as consumers cut back on travel or bought cheaper tickets. Revenue fell 17 percent to $3 billion as traffic dropped more than 11 percent.

The world's fifth-largest airline said its first-quarter loss widened to $136 million, or $1.10 per share, from $80 million, or 81 cents per share, a year earlier.

Excluding $4 million in aircraft-related charges, the loss was $1.07 per share, smaller than analysts' expectations of a $1.15 loss, according to Reuters Estimates.

Fuel expenses declined more than 40 percent, helping Continental cut its mainline cost per available seat mile by 10 percent. The company said it expects to cut full-year capacity by 4 to 5 percent.

Continental said during a conference call that the average selling fare in the transatlantic region was down 35 percent year-over-year for travel through May. Standard & Poor's analyst Jim Corridore cut his earnings estimates after the call and cited the possibility for worse-than-expected second-quarter revenue.

There might be a feeling that Continental could do more in terms of cutting back capacity and removing things like staffing and other costs that go along with any kind of capacity reduction, said Matthew Jacob, analyst with Majestic Research.


AirTran, which has cut operating costs, moved to reduce debt and revamped fuel-hedge contracts to reduce the potential for losses tied to oil prices, turned in a profit of $28.7 million, or 21 cents a share, for the first quarter.

The company said its load factor, or percentage of seats filled, was 76.3 percent, a record for the period.

Capacity, measured in available seat miles, was down 7.2 percent, while fuel costs fell 50.5 percent.

There's a shift of people trying to cut costs and fly on low-cost carriers, Morningstar analyst Basili Alukos said.

He noted that discount carrier Southwest Airlines also posted a record first quarter performance in its load factor last week.

AirTran said it expected capacity to be down 7 percent in the second quarter.

Continental shares slumped 9.3 percent to $13.60 on the New York Stock Exchange, while AirTran ended up $1.35, or 24.2 percent, to $6.93.

(Reporting by Deepa Seetharaman and Karen Jacobs; Editing by Patrick Fitzgibbons, Lisa Von Ahn and Gary Hill)