Rising fuel costs weighed on first-quarter earnings for both

Northwest Airlines

(NWAC)

and

Continental Airlines

(CAL) - Get Report

but that did not stop either airline from handily beating Wall Street's expectations.

Northwest, the nation's fourth-largest airline, posted a first-quarter net loss of $41 million, or 51 cents a share, compared with a net loss 46.3 million, or 58 cents a share in the year-earlier period.

Including one-time gains, net income for the quarter rose to $3 million, or 3 cents a diluted share, compared with a net loss of $29 million, or 36 cents a diluted share, in the year-earlier period.

Revenue for the quarter rose 13% to $2.1 billion.

Wall Street had expected the St. Paul, Minn.-based firm to post a loss of 71 cents a share, according to

First Call/Thomson Financial

.

Despite the earnings surprise, shares of Northwest were off 1/8, or 1%, at 23 1/2. (Northwest closed up 5/16, or 1%, at 23 15/16.)

Northwest said it incurred $174 million in additional fuel expenses compared with the 1999 first quarter because of a steep run-up in fuel prices. Crude oil hit a nine-year high of $34.13 in March as inventories shrank and supply concerns mounted. Since, oil prices have pulled back and were lately trading around $27.35 a barrel.

As a result, cost per available seat mile increased 3.6% in the quarter.

Northwest, which repeatedly tried and failed to institute fare increases in order to offset the jump in oil prices, was considered by analysts to be among the poorest hedged airlines. Hedges allow airlines to buy fuel at preset prices, protecting them should steep increases occur.

Meanwhile, Continental Airlines, the fifth-largest airline in the U.S., reported a 73% drop in profit, primarily as the result of higher fuel costs.

For the first quarter ended March 31, earnings fell to $14 million, or 14 cents a diluted share, from $52 million, or 77 cents a share, a year earlier. The consensus of analysts polled by First Call/Thomson Financial was that the company would break even.

Revenue rose to $2.28 billion from $2.04 billion a year ago.

Fuel costs rose 128.7% in the quarter to $343 million, from $150 million a year ago. Higher fuel prices accounted for 97% of the rise, the company said. Those increases drove up the cost per available seat mile by 6.7% to 9.78 cents from 9.17 cents.

The Houston-based company ended the quarter with $1.4 billion in cash and short-term investments.

Shares of Continental dropped 7/8, or 2%, to 39 1/2 in midday trading Thursday. (Continental finished down 1 1/4, or 3%, at 39 1/8.)

On Wednesday airline shares jumped after

UAL

(UAL) - Get Report

and

AMR

(AMR)

, parent companies of the two largest airlines in the U.S.,

United

and

American

, reported strong quarterly

earnings.