By Mary Schlangenstein – Jun 2, 2010
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Continental said that May revenue from each seat flown a mile rose in a range of 23 percent to 24 percent. Photographer: Tim Boyle/Bloomberg

United Airlines parent UAL Corp. and Continental Airlines Inc. led an industry index to its biggest advance since February after Continental beat analysts’ estimates for monthly unit revenue.

The Bloomberg U.S. Airlines Index of 12 carriers climbed 5.9 percent, the biggest one-day gain since Feb. 9. Continental said late yesterday that May revenue from each seat flown a mile rose in a range of 23 percent to 24 percent.

Continental’s report, the first issued for May among major carriers, signals the return of business passengers who buy the most-expensive tickets. Michael Derchin, a CRT Capital Group LLC analyst in Stamford, Connecticut, projected a unit revenue increase of 17 percent to 18 percent.

The results “were driven by higher-than-anticipated prices, which we attribute to a rebound in higher fare-paying business travelers and fare surcharges implemented during peak travel days,” Derchin wrote in a report.

Yield, or average fare per mile, gained as much as 20 percent in May, he estimated. Continental also benefited from lower jet-fuel prices last month, said Derchin, who rates Continental “fair value.”

Continental’s revenue “has positive implications for all of the U.S. airline stocks, but particularly those with international exposure,” according to a report by Kevin Crissey of UBS AG in New York, who recommends buying the shares. He estimated the unit revenue gain would be 22 percent, while Jamie Baker of JPMorgan Chase & Co. in New York predicted 17 percent.

Airline Shares

Continental climbed $2.25, or 11 percent, to $22.54 at 4 p.m. in New York Stock Exchange composite trading, while US Airways Group Inc. rose 80 cents, or 9.3 percent, to $9.44; American Airlines parent AMR Corp. increased 63 cents, or 8.3 percent, to $8.20; and Delta Air Lines Inc. rose 55 cents, or 4.1 percent, to $14.09.

UAL jumped $2.43, or 13 percent, to $21.78 on the Nasdaq Stock Market.

More than 19.1 million US Airways shares changed hands on speculation the carrier may be involved in the next airline merger, said Alec Levine, an options strategist at Wallachbeth Capital LLC in New York. Tempe, Arizona-based US Airways held talks with United before that carrier agreed to combine with Continental on May 3.

“The outperformance of US Airways is staggering; it’s clearly targeted,” Levine said. “The guys who are entering these positions, whether they are buying the stock up or doing options trades, they’ve got high convictions and they think a takeover may happen sooner rather than later.”

Alaska Air Group Inc., the parent of Alaska and Horizon airlines, rose $3.75, or 8.1 percent, to $49.93, a 52-week high. Bank of America Corp. restarted coverage of Alaska and US Airways today with “buy” recommendations.