By Karen Jacobs and Deepa Seetharaman

ATLANTA/NEW YORK, US - Demand for air travel among business customers is rising and major U.S. airlines said on Tuesday they would consider charging additional fees while cutting costs to increase their profits.

Delta Air Lines, the world's largest carrier, said business trends were improving. Unit revenue in March would be up 16 percent, the company said.

United Airlines is "clearly seeing signs of economic recovery and premium and corporate travelers returning," UAL
Corp Chief Financial Officer Kathryn Mikells told attendees at a J.P. Morgan conference.

"The return of higher quality traffic, combined with the significant reductions in capacity that we undertook in 2009, has really begun to improve our relative revenue results," Mikells said.

Traffic reports for the first two months of 2010 signal that demand is improving at major U.S. airlines.

Load factors, a measure of how full a plane is, were higher for the top six U.S. airlines last month.

American Airlines parent AMR Corp expects unit revenue to be up 6.5 percent to 7.5 percent in the first quarter.

Low-cost carrier Southwest Airlines said March bookings were "very strong" while rival AirTran Holdings Inc cited "rapid" improvement in yield trends.

"Things are moving in the right direction," said S&P analyst Jim Corridore, who has "buy" ratings on many airline
companies' stocks.

"The airlines have really improved the supply-demand balance in terms of capacity, so pricing should go up on strengthening demand."

Airlines should be able to raise fares this summer, Corridore said.

The Arca Airline index hit a two-year high in afternoon trading.

American shares vaulted more than 11 percent before paring gains to rise 9 percent.

KEEPING CAPACITY DOWN

The airline industry cut back on the number of fare sales, which led to higher ticket prices, said US Airways Chief
Operating Officer Robert Isom at the JP Morgan event.

Airline executives also reiterated the need for the industry to temper capacity increases as the industry recovers from high fuel prices in 2008 and a severe recession in 2009.

U.S. airlines cut capacity nearly 7 percent in 2009, the deepest annual cut since 1942, according to the Air Transport Association. Airline executives said Tuesday they were not ready to put seats back into the market.

"There is no indication we should be adding capacity," American CEO Gerard Arpey told reporters at a conference in Washington. For American, he said, "we've got to generate a lot more revenue."

FOCUSING ON FEES

Baggage fees are now the norm for many airlines and new revenue streams are in the offing.

Last week, Continental Airlines Inc unveiled a new passenger fee for booking seats with extra legroom.

Continental is working on other "little things" to grow ancillary revenue, CEO Jeff Smisek said at the J.P Morgan event.

Mikells also said United was mulling other products and services that customers would be willing to pay for.

Continental expected bag fees alone to generate US$350 million in 2010.

U.S. Airways projects a la carte revenue will total more than US$500 million this year.

UAL shares closed up 3.6 percent Tuesday, while industry leader Delta gained 2.2 percent.

Continental was up 4.9 percent, while US Airways Group rose 5.3 percent. --REUTERS