Delta Air Lines and US Airways Group reported much stronger-than-expected fourth-quarter results on Wednesday as both carriers raised fares, offsetting a surge in fuel prices.

Shares of the two airlines shot up in early trading. Both are exploring a merger with AMR Corp, the bankrupt parent of American Airlines.

Delta's earnings of 45 cents per share before special items beat the analysts' average estimate of 38 cents, according to Thomson Reuters I/B/E/S. The company's shares rose more than 7 percent.

US Airways, whose shares jumped more than 12 percent, reported an adjusted profit of 13 cents per share, trouncing Wall Street expectations of 2 cents.

For two years now, airlines have been recovering from a decade-long downturn that led to several airline bankruptcies and mergers. A spike in fuel costs in 2008 hastened a series of capacity cuts across the industry as well as higher fares.

The sector has improved profit margins by trimming flight schedules, raising fares and adding baggage fees. Retiring less fuel-efficient planes and cutting nonfuel costs also helped.

During the fourth quarter, revenue rose 8.5 percent at US Airways and 8 percent at Delta. Both posted double-digit fare hikes for both their mainline and regional carriers.

Delta reported net income of $425 million or 50 cents per share, for the quarter, up from $19 million, or 2 cents per share, a year earlier.

Delta produced a revenue premium to the industry and fully covered our fuel cost increase with higher revenues, President Ed Bastian said in a statement.

Rising fuel prices in 2011 pushed US Airways' net income lower in the fourth quarter, to 11 cents per share from 17 cents a year earlier.

The company spent $3.4 billion on aircraft fuel and related taxes in 2011, up 41.4 percent from 2010.

Had fuel prices last year remained on par with 2010, US Airways said, its fuel expenses for 2011 would have been about $1.2 billion lower.

Industry executives, including US Airways Chief Executive Officer Doug Parker, have advocated further consolidation in the sector to contend with overcapacity and high fixed costs and fuel prices.

Delta and US Airways are exploring a potential deal with American Airlines, which filed for bankruptcy in November, people familiar with the matter have said.

Looking forward, we are encouraged by the continued strength in demand and believe US Airways is well-positioned for success in 2012 and beyond, Parker said in a release.

Shares of Delta were up 7.4 percent at $10.07 in early trading, while US Airways jumped 12.3 percent to $7.20.

(Reporting by Deepa Seetharaman in Detroit; Editing by Lisa Von Ahn)

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