United Airlines parent UAL Corp and Continental Airlines posted quarterly losses on sagging travel, and both carriers, like many other major U.S. companies, unveiled cost-cutting efforts for the second half of 2009.

Low-cost rival Southwest Airlines , meanwhile, said it earned a profit in the second quarter, but warned that it may return to a loss in the third quarter.

The results, while mixed, underscore the recent trials in the battered airline industry as it struggles to shrink fast enough to adjust to demand.

The sudden collapse of the financial markets in September, October just spooked the whole world, Southwest Chief Executive Gary Kelly said during a conference call. It was not anticipated by many, and you will see adjustments to that collapse over time.

UAL said on Tuesday it would cut its international flights 7 percent in the last four months of 2009. Continental said it would cut 1,700 jobs across the company.

Delta Air Lines and AMR Corp's American Airlines are also cutting capacity.

Many of our competitors have recently announced additional capacity reductions, UAL CEO Glenn Tilton said on a conference call with analysts and reporters. Yet industry capacity is still not aligned with demand, particularly internationally.

UAL DEFENDS CASH POSITION

UAL reported a second-quarter loss of $2.23 per share, less than analysts expected, which sent shares 10 percent higher to $3.86 on Nasdaq before paring gains to 6 percent at $3.72.

The loss excludes noncash, net mark-to-market hedge gains and accounting charges. With those factored in, UAL posted a net profit of $28 million, or 19 cents per share, compared with a year-ago loss of $2.74 billion, or $21.57 per share.

UAL, which saw a revenue decline of 25.2 percent, ended the quarter with $2.8 billion in total cash, of which $2.6 billion was unrestricted. Some experts are watching UAL's liquidity and predicting a shortfall that could lead to Chapter 11.

Our solid cash balance also holds us in good stead with the agreements we have in place with our primary credit card processing companies, UAL Chief Financial Officer Kathryn Mikells said in a memo to employees.

CONTINENTAL TO CUT JOBS, RAISES FEES

Continental's results were hurt by the slump in business travel and fears about the H1N1 virus, and airlines have had to lower fares to fill seats. During a call with analysts, CEO Larry Kellner said the carrier had a long way to go in seeing a rebound in business traffic.

Chief Operating Officer Jeff Smisek said pricing pressure is expected to persist in the third quarter.

Excluding $44 million in special charges from the falling value of its aircraft, the airline said it lost $169 million or $1.36 per share, in line with analyst estimates.

Continental's net loss widened to $213 million, or $1.72 per share, from $5 million, or 5 cents per share.

Shares fell 6 percent to $9.56 on the New York Stock Exchange in late afternoon trade.

They haven't been able to cut costs as much (as UAL), in addition to revenues. Maybe their margins will be under a little pressure as well, said Matt Jacob, an airline analyst at Majestic Research.

Houston-based Continental said it would increase its domestic checked-bag fee by $5, effective August 19, for those not prepaying online. Delta Air Lines also recently added a $5 fee for each bag checked at the airport.

Continental aims to generate about $100 million annually when the measures are implemented in 2010. The carrier also immediately increased its telephone-reservation service charge by $5 and said other revenue initiatives will follow.

SOUTHWEST CANNOT PROMISE Q3 PROFIT

Southwest posted a quarterly profit, helped by lower costs and sharply lower fuel prices from a year earlier, after three straight quarters of losses.

Southwest earned $54 million, or 7 cents per share, in the second quarter, compared with $321 million, or 44 cents per share, a year ago.

Excluding special items, Southwest earned $59 million, or 8 cents per share. Revenue fell 9 percent to $2.6 billion.

Despite the profit, CEO Kelly said in a statement he could not predict a profitable third quarter, due to weak travel demand and fuel price volatility.

Weakness in bookings could persist after the peak summer period, Kelly said during a conference call.

Southwest shares fell 6 percent to $6.86 on the NYSE.

(Reporting by Kyle Peterson and Deepa Seetharaman; Editing by Patrick Fitzgibbons, Brian Moss, Gary Hill)

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