WRAPUP 4-US airlines' results buoyed by recovery

* United tops estimates, excluding items

* US Airways cites first profitable Q4 in years

* Cost cuts, mergers help bottom lines

* United, USAir shares jump 7 pct (Recasts with analyst, company comments; adds share activity)

By Karen Jacobs

ATLANTA, Jan 26 (Reuters) - Improving business travel in a recovering economy helped two major U.S. airlines top Wall Street profit estimates, signaling that the industry's recovery from a years-long slump is on a solid footing.

United Continental Holdings (UAL.N), the world's biggest carrier, had a fourth-quarter profit compared with a year-earlier loss after accounting for merger costs and other items, and US Airways touted its first profitable fourth quarter since 2006. [ID:nN25284087] [ID:nN26125314]

Airlines have started charging higher fares as demand returns after the downturn of 2008 and 2009, and baggage fees have also given bottom lines a lift.

"The demand is still increasing," said ITG Investment Research analyst Matthew Jacob. "There is room for improvement, especially if capacity can be kept in check."

Shares of United Continental and US Airways both climbed about 7 percent on Wednesday, and other airlines also gained. The Arca Airline index .XAL rose 2.1 percent.

"The airlines are doing much better because of cost cutting, consolidation and the recovering economy," said Ray Neidl, a senior aerospace specialist with investment banking, securities and investment management firm Maxim Group. "The only major risk factor in my opinion is where fuel prices would go."

United Continental, formed when UAL Corp acquired Continental Airlines last year, said it had raised fares recently to cope with rising oil prices, while adding seat capacity to meet international demand.

The carrier, now the world's biggest, said it expected January passenger revenue per available seat mile, an important airline measure, to rise 12 percent for its mainline United operations and 11 percent including regional aircraft.

"The big concerns over the past couple of weeks in the industry have been capacity and the outlook for revenue heading into 2011," Jacob said. "Some of the commentary, especially from Continental, helped allay some of those concerns of will revenue continue to grow."

US Airways said fuel prices would influence its capacity plans and added that it was keeping costs down. For example, it said its mainline costs, excluding fuel, profit sharing and special items, were down 2 percent in the fourth quarter from a year earlier.

Investors in airline shares largely ignored rising U.S. crude oil prices, which rallied above $87 a barrel on Wednesday after six straight days of losses. [ID:nLDE70P27E]

Quarterly revenue rose 15 percent at United Continental and about 11 percent for US Airways.

"As we roll over to a new calendar year, we feel good about the revenue environment," US Airways President Scott Kirby said on a conference call. "Business demand is strong."

Last week, Delta Air Lines Inc (DAL.N) reported a quarterly profit against a year-earlier loss [ID:nN18163217], and Southwest Airlines Co (LUV.N) turned in higher earnings [ID:nN19251584]. American Airlines parent AMR Corp AMR.N posted a smaller loss. [ID:nN18162073]

"The airlines are in a pretty strong position for 2011, and the fourth quarter, despite the storms, is demonstrating how strongly they are coming back," Neidl said.

United Continental shares rose 7.1 percent to end at $25.79, while US Airways gained 6.6 percent to $10.80. Delta added 3 percent to $11.98, and AMR gained 2.5 percent to $7.39. (Reporting by Karen Jacobs, with additional reporting by Kyle Peterson in Chicago; Editing by Maureen Bavdek, Derek Caney and Lisa Von Ahn)