Continental Airlines Inc and Southwest Airlines Co results topped Wall Street estimates as more people booked flights and ticket prices rose, but the airlines said Thursday the path to recovery would be rough.

Business travel has not yet fully revived, executives at the two airlines said, but the demand from this lucrative sector has improved, especially from mid-2009.

We are seeing business traffic come back slowly, but we're stressing the word 'slowly,' Continental Chief Marketing Officer Jim Compton said during a call with analysts and reporters.

Continental shares hit a one-year high, but slipped more than 2 percent later in the session after the company projected a drop in its unit revenue for January.

Investors had expected revenue per available seat mile (RASM) numbers to improve from December, as it has been gaining sequentially for the last few months. Continental said the projections were driven by a slow recovery of business traffic coupled with stronger leisure demand in December.

Meanwhile, shares of Southwest edged slightly higher, reversing an earlier fall. The company said its January passenger unit revenue is estimated to have increased between 14 and 15 percent year over year.

Our full-fare business traffic has stabilized, but we are definitely not back to pre-recession levels, said Southwest Chief Financial Officer Laura Wright during a call with analysts and reporters.

The two carriers' results come a day after American Airlines parent AMR Corp posted a quarterly loss but said demand was improving. Higher-than-expected revenue, cost cuts and a drop in fuel costs helped Southwest and Continental beat analysts' expectations.

U.S. airlines have cut jobs and trimmed capacity in the past two years in an effort to hem costs in the face of a severe recession in 2009 and a surge in fuel prices in 2008.

The Arca Airline Index <.XAL> fell 2.2 percent in afternoon trading alongside a drop in the broader stock market.

Continental shares fell 2.3 percent to $20.15, while Southwest shares rose 1.4 percent to $11.49.

CONTINENTAL POSTS SURPRISE PROFIT

Continental said it expects its mainline RASM to fall 4 percent in January. Its consolidated RASM, which also accounts for the performance of its feeder airlines, should fall 3 percent.

This outlook overshadowed news that Continental had handily beat earnings forecasts for the fourth quarter.

The world's fifth-largest airline reported net income of $85 million, or 60 cents per share, for the fourth quarter. A year earlier, it reported a net loss of $269 million or $2.35 per share.

Excluding items, Continental posted a profit of 3 cents per share. Analysts on average had expected the carrier to post a loss of 7 cents per share, according to Thomson Reuters

I/B/E/S.

Continental said declines in its corporate revenue were abating. High-yield revenue, which can be used as a proxy for corporate demand, fell 1 percent in December, after a drop of nearly 40 percent back in May.

Continental expects mainline domestic capacity to remain flat. It looks for international capacity to jump between 4 percent and 5 percent this year.

SOUTHWEST NOTCHES ANOTHER PROFIT

Dallas-based Southwest said it plans to keep capacity flat this year, but focus on flying to more profitable cities such as New York, Boston and Milwaukee, Wisconsin.

Southwest Chief Executive Gary Kelly said the company is still looking for ways to grow in 2010, although likely not through fleet expansion. One possible option is through acquisitions.

Southwest reported a fourth-quarter net profit of $116 million, or 16 cents a share, compared with a net loss of $56 million, or 8 cents per share, a year earlier.

Excluding items, it posted a profit of 10 cents per share. Analysts on average had expected the carrier to post a profit of 7 cents per share, according to Thomson Reuters I/B/E/S.

(Additional reporting by Kyle Peterson; Editing by Gerald E. McCormick and Robert MacMillan)

American Airlines