ATLANTA (Bloomberg) — AMR Corp. and UAL Corp., parents of the two largest US airlines, may lead third-quarter losses in an industry beset by near-record fuel costs and a slowing economy.

The combined operating deficit for the 10 biggest US airlines will be about $1 billion, double the second-quarter loss, said Michael Derchin, an analyst at FTN Midwest Research Securities in New York. AMR's American reports results today, followed by UAL's United next week.

Airlines' moves to shed flights, planes and workers following a surge in jet fuel prices in the first half may help them weather a slump in travel demand, said Jim Corridore, an analyst at Standard & Poor's Equity Services.

"Fuel really hit them hard, and they responded quickly by raising fares and taking capacity out," said Corridore, who is based in New York. "They have made a lot of hard decisions."

Jet-fuel averaged $3.53 a gallon last quarter, 61 percent higher than a year earlier.

American, United and Continental Airlines Inc. each posted traffic declines of at least nine percent for September, the worst results for any month this year.

Fort Worth, Texas-based AMR may say it lost $360 million in its fourth straight quarterly deficit, according to the average of five analyst estimates compiled by Bloomberg. Some of the projections were updated today.

UAL, based in Chicago, may lose $310.1 million, partly because of writedowns on the value of its fuel-hedging contracts. Southwest Airlines Co. and Alaska Air Group Inc. may be among the few profitable carriers as they benefit from their hedges, FTN's Derchin said.

Delta Air Lines Inc., which also reports earnings today, will "roughly break even" for the quarter because of higher fares and capacity cutbacks plus more revenue from cargo and maintenance operations, President Ed Bastian said on September 18. Delta is poised to become the world's biggest carrier when it buys Northwest Airlines Corp. later this year.

The 10 biggest US carriers had combined operating losses of $2.1 billion in the first half of this year.

The International Air Transport Association in September more than doubled its forecast for combined losses at the world's biggest carriers this year, to $5.2 billion. It was the fifth time the industry trade group had increased its annual loss estimate.

Businesses and consumers are reining in spending as the US economy enters what may be the first recession since 2001. The economy will probably shrink at a 0.2 percent annual pace in the third quarter and 0.8 percent in the last three months of 2008, according to the median estimate of 52 economists surveyed October 3 to 8.

US airlines are trying to cover fuel costs through fare increases and new fees such as $30 round-trip to check the first piece of luggage.

They're also parking 460 planes and cutting 26,000 jobs while slashing domestic capacity by at least 10 percent.

Fuel remains the highest cost for many airlines, surpassing labour.

Carriers may need to cut capacity beyond the reductions already announced, Merrill Lynch & Co. analyst Michael Linenberg said in an October 2 note to clients. He projected an additional 3.1 percent reduction in US capacity for 2009.

The industry's capacity reductions so far have led to fares that are much higher "than what the industry is used to seeing during periods of economic weakness," Linenberg wrote.

Linenberg projects a $1.3 billion collective profit for the biggest US carriers in 2009, up from a previous forecast of a $350 million loss.

Fuel costs have receded since July, suggesting industry losses last quarter may not be as severe as some analysts had projected, S&P's Corridore said. Jet fuel for immediate delivery in New York Harbor tumbled 29 percent during the quarter from its peak of $4.36 a gallon on July 3.

"Traffic is down by a commensurate amount to the capacity they're taking out of the system, and they're also raising fares," Corridore said.

"They're getting rid of their worst customers," travellers who won't pay higher fares, he said.

UAL plans to add about $275 million to its cash holdings by year's end through aircraft financing and selling assets.

"We are further strengthening our cash position, and we are pleased to close this transaction, particularly in this market environment," Kathryn Mikells, who will become chief financial officer next month, said in a statement October 1.

AMR also has taken steps to boost cash, including a stock sale that raised about $300 million. The efforts will help the company "through what remains a very challenging industry environment," Tom Horton, AMR's finance chief, said in a statement September 18.

Airline stocks are trading at near-historic lows. The Bloomberg US Airlines Index, made up of the 14 biggest carriers, has dropped 34 percent this year before today.

AMR slid 9 cents to $8.79 at 12:56 p.m. in New York Stock Exchange composite trading, and fell 37 percent this year before today, while Delta rose 9 cents to $6.89 and was down 54 percent this year. UAL fell 6 cents to $6.94 in Nasdaq Stock Market trading. The shares dropped 80 percent in 2008 through yesterday.