Airline results on Thursday provided new evidence that the industry recovery is on track, driving shares higher, but the bumpy economy prompted an outlook for slow progress.

Continental Airlines Inc , JetBlue Airways , and Alaska Air Group all handily beat Wall Street expectations, reporting stronger profits on rebounding demand and big revenue gains driven by higher fares and new fees.

Those reports followed profit reports from Delta Air Lines and United Airlines, a unit of UAL Corp , earlier in the week, reflecting the robust revenue trend on higher passenger demand.

Continental executives, who see strong revenue trends continuing in July, nevertheless adopted a cautious tone on the pace of recovery gains.

We like the trends we are seeing, but continue to believe this will be a long, slow recovery, Jim Compton, CAL's chief marketing officer, told analysts on a conference call.

JetBlue shares were up 6.9 percent, Continental shares were 3.5 percent higher and Alaska Air rose 1.3 percent. The Arca Airline index <.XAL> gained 3.9 percent.

(See graphic: airline recovery http://link.reuters.com/xak98m)

ROOM FOR REVENUE JUMP

Higher fares have boosted results as have ancillary bag and other fees, which are expected to decline as passengers check less luggage. For example, Continental said its average fare-per-revenue passenger rose 20.6 percent.

Analysts believe there is more room for revenue growth, which underpinned one of the industry's best quarters in recent memory.

We're not back to peak revenues yet, said Helane Becker, an analyst with Dahlman Rose & Co.

Earlier this week, US Airways Group said the U.S. economic recovery was tepid and Delta's third-quarter outlook was characterized as conservative. Delta, however, forecast a full-year profit.

AMR Corp's American Airlines narrowed its quarterly loss, but analysts raised concerns that its growth potential could be limited, given that other U.S. rivals with strong international networks have merged or are planning to do so.

Continental is expected to merge with United Airlines by the fourth quarter becoming the world's largest airline. Delta is the current industry leader.

AHEAD OF ANALYST EXPECTATIONS

Continental posted net income of $233 million, or $1.46 per share, compared with a year-earlier net loss of $213 million, or $1.72 per share.

Excluding $24 million of merger-related costs and other charges, Continental reported a profit of $1.60 per share. Analysts on average had expected $1.51, according to Thomson Reuters I/B/E/S.

JetBlue's net income rose to $30 million, or 10 cents per share, from $20 million, or 7 cents per share, a year earlier.

Analysts on average were expecting earnings of 8 cents per share.

Alaska reported earnings of $58.6 million, or $1.60 per share, compared with $29.1 million, or 79 cents per share in the year-earlier period.

Excluding special items for fuel hedge accounting and aircraft transition charges, earnings were $84 million, or $2.29 per share, ahead of analysts' expectations of $2.12 per share.

It was Alaska's best quarterly performance ever on an adjusted basis.

(Additional reporting by Karen Jacobs in Atlanta, editing by Maureen Bavdek and Gunna Dickson)

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