United Airlines parent UAL Corp and Continental Airlines posted quarterly losses on sagging travel, and both carriers, like so 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 it may return to a loss in the third quarter.

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

They've been able to survive the toughest environment in a long time, said Morningstar Equity analyst Basili Alukos. I expect to still see cuts from some of the other big guys.

UAL said on Tuesday it would cut its international flights 7 percent in the last four months of 2009. Continental said it would cut its work force by 4 percent, or 1,700 jobs.

The announcements of capacity and job cuts follow earlier news that Delta Air Lines and AMR Corp's American Airlines would ramp up their capacity cuts. AMR last week posted a quarterly loss.

UAL DEFENDS CASH POSITION

UAL reported a second-quarter loss of $2.23 per share, less than analysts expected, which sent shares as much as 10 percent higher to $3.86 on Nasdaq before paring gains to 6.3 percent at $3.73.

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

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.

Experts are keeping a close eye on UAL's cash balance, with some predicting a shortfall that could tip the carrier into bankruptcy.

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, which have forced the carrier and its peers to offer heavily discounted fares.

In the third quarter, We expect to see pricing pressure similar to what we saw in the second quarter, Chief Operating Officer and President Jeff Smisek said during a conference call with analysts.

Continental, which recently entered a strategic partnership with UAL, said that excluding $44 million in special charges from the declining value of its aircraft, it lost $169 million, or $1.36 per share, in the quarter.

Results were nearly in line with expectations. Shares fell 8.5 percent to $9.31 on the New York Stock Exchange.

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

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.

In addition to the job cuts, Continental said it would increase its domestic checked bag fee by $5, effective August 19, for those not prepaying online.

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

During the call, CEO Larry Kellner said the carrier still had a long way to go in seeing a rebound in business traffic.

Continental announced last week that Kellner would step down and be replaced by Chief Operating Officer Jeff Smisek on January 1.

SOUTHWEST CANNOT PROMISE Q3 PROFIT

Southwest posted a quarterly profit after three straight quarters of losses, helped in part by lower costs.

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 Gary Kelly offered a gloomy outlook.

We are not immune to the effects of the debilitating economic environment, he said in a statement. Based on weak travel demand and fuel price volatility, we cannot predict a profitable third quarter 2009.

Southwest shares were down 7.8 percent at $6.73 on the NYSE.

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

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