UPDATE 1-US airline shares up on better economic outlook

* U.S. airline shares up following strong economic data

* Stocks set to benefit from economic rebound – analyst

* Arca airline index closes up 2.9 pct
(Adds background on quarterly earnings, pending announcement
of management for combined Continental-United and updates
shares)

CHICAGO/NEW YORK, July 26 (BestGrowthStock) – U.S. airline shares
rose broadly on Monday, including merger partners United
Airlines (UAUA.O: ) and Continental Airlines (CAL.N: ), helped by
signs of economic recovery that could bolster travel demand.

United’s parent UAL Corp jumped as much as 9 percent to $25
on Nasdaq before paring those gains to close 5.6 percent higher
at $24.25.

Continental shares rose as much as 6 percent to $25.69 on
the New York Stock Exchange to a new 12-month high, and closed
just a touch lower at $25.65, up 5.8 percent.

Jim Corridore, equity analyst at Standard & Poor’s, pointed
to strong data released Monday on U.S. new home sales, which
rose 23.6 percent in June. He also cited an optimistic earnings
outlook from package delivery company FedEx Corp (FDX.N: ), which
reported quarterly earnings Monday. [ID:nN26203473]
[ID:nN26199061]

“These stocks are trading lately on the overall outlook for
the economy,” Corridore said. “If the economy is going to start
improving, these stocks are golden.”

The economic recession hit the travel industry hard,
draining demand for both business and leisure travel.

But carriers were well braced, having cut capacity in 2008
to offset surging oil prices, which are down from the record
highs of 2008 but still trading near a historically high $80 a
barrel.

In quarterly reports last week, most airlines showed a
sharp improvement in second-quarter earnings compared with a
year ago. The Arca airline index (.XAL: ) closed up 2.9 percent
on Monday. The index rose more than 5 percent last week.

“Everyone is poised to believe because the industry has
remained stern on capacity, that the industry should do
extremely well during the upswing,” said Basili Alukos, equity
analyst at Morningstar. “Although this is true, I think the big
concern should be the price of oil.”

United and Continental plan to merge in the fourth quarter
of this year, creating the world’s largest airline, which
analysts expect will prune some excess capacity from the system
and allow airlines to raise fares.

In a filing last week, Continental said it would soon name
the senior officers who will report directly to Chief Executive
Jeff Smisek, who will lead the combined airline.

No management or clerical jobs will be cut before March 31,
2011, the filing said, although some top executive positions
could be cut beforehand.

Investing

(Reporting by Kyle Peterson and Deepa Seetharaman; Editing by
Tim Dobbyn)

UPDATE 1-US airline shares up on better economic outlook