Major U.S. airlines this week reported December traffic showed signs of steady recovery from the drastic slide that followed last year's attacks on the United States even as most carriers operate reduced schedules.

Continental Airlines, No. 5 U.S. carrier, set a positive tone for the industry on Wednesday when it reported its load factor — the percentage of passengers filling its planes — climbed 1.3 points to 72.7 percent compared to a year earlier.

Airline stocks have rallied over the last week as investors reacted to improved traffic results, optimistic economic indicators and a softening of fuel prices, analysts said. Most aviation analysts are forecasting a mid-2002 turnaround for airline profits.

Shares of Continental gained more than 7 percent on Friday while shares of United Airlines parent UAL Corp climbed more than 6 percent on the New York Stock Exchange.

Houston-based Continental also reported its unit revenues — a widely watched barometer of airline performance — fell 14 percent to 16 percent in December, an improvement over the 17-percent decline a month earlier.

"This is what the airlines were shooting for, to get people back traveling," said Ray Neidl, an airline analyst with ABN Amro. "Then they can get back to more normal schedules and start pricing to make profits again."

After Continental's report, Merrill Lynch analyst Mike Linenberg narrowed his fourth-quarter loss estimates for airline to reflect its improved revenue outlook.

"We are becoming more confident that industry revenues will recover by late 2002," Linenberg said in a research note to clients.

Mixed Results

U.S. airlines saw passenger load factors slide to as low as 57 percent soon after the Sept. 11 aerial attacks on the World Trade Center and the Pentagon which dented consumer confidence in air travel.

Airlines also reported at the time that unit revenues fell more than 30 percent on average after the attacks.

Most major carriers, with the notable exception of Southwest Airlines Co., trimmed schedules sharply to match the weaker demand and have also slashed fares to lure passengers back to the skies.

American Airlines, a unit of AMR Corp and the world's largest carrier, said on Thursday that its load factor fell 1.7 points in December to 67.2 percent on a 15 percent drop in capacity.

On Friday, Southwest, the No. 7 U.S. airline, said its load factor fell 1.9 points to 64.6 percent in December from last year. Southwest in December it planned to add flights to its system.

America West Airlines, a unit of America West Holdings, said on Thursday that its systemwide load factor fell 0.8 points to 67.1 percent in December from a year ago on a 14 percent drop in capacity.

But even with as traffic edges back, the industry has a long haul before they can add capacity and start returning to profits, analysts said. Aviation experts believe U.S. carriers will report as much as $9 billion in annual losses this year.

"If you looked at load factors alone, you would think the industry was in great shape," said Brian Harris, a Salomon Smith Barney airline analyst.

"The load factor looks good because about 15 percent to 20 percent of the capacity has been taken out and airlines have resorted to fare sales to bring back passengers so they have weaker yields," Harris said.

Major airlines have reported that yields, a measure of how much passengers pay to fly one mile, were as much as 25 percent lower than they reported a year earlier.