Updated from 11:40 a.m. EDT

Delta Air Lines

(DAL) - Get Report

and

Northwest Airlines

(NWAC)

both reported earnings increases that topped Wall Street's estimates, providing more evidence that swelling passenger volume has more than offset escalating fuel costs among the major airlines this year.

Investors reacted positively, Delta closed Thursday regular trading up 1/4, or 0.5%, to 53 7/8. However, Northwest finished down 1 7/16, or 4.1%, to 33 1/4.

The nation's third-largest carrier, Delta Air Lines reported earnings of $376 million, or $2.86 a diluted share, for its fourth fiscal quarter, up 3% from earnings of $364 million, or $2.40 a share, in the comparable period a year earlier. The current earnings beat consensus estimates among Wall Street analysts surveyed by

First Call/ Thomson Financial

by 14 cents a share.

The Atlanta-based airline's earnings excluded three one-time items: a $228 million non-cash pre-tax gain from exchanging

priceline.com

(PCLN)

common stock for convertible preferred stock; a charge of $86 million for an early retirement medical option program; and a change in accounting methods for selling frequent flyer mileage credits to its program partners.

Leo F. Mullin, the airline's chairman and chief executive, attributed Delta's unexpected strong earnings in part to its record 32 million passengers last quarter.

Increased passenger volume also helped St. Paul, Minn.-based Northwest Airlines beat analysts estimates by 28 cents a share. Northwest reported second-quarter net income of $115 million, or $1.26 a diluted share, up 12% from $103 million, or $1.10 a share, in the year-earlier period.

The country's fourth-largest airline experienced record demand in the second quarter and a passenger load factor of nearly 83% in June -- the company's highest ever. Its nearly 13% year-over-year jump in passenger revenue and 25% increase in record cargo transport revenue more than offset rising fuel costs. Mickey Ford, Northwest's chief financial officer, said non-fuel costs were also kept down, with cost per available seat mile rising less than 1% year over year, excluding fuel price increases.

Susan Donofrio, an analyst at

Deutsche Bank

, rates Delta and Northwest among her top three large-capitalization airline stock picks, with strong buy ratings on each. She noted stronger-than-expected revenue trends that have continued into the third quarter, with rising passenger demand and a 13% year-over-year increase in the average business fare. Deutsche Bank has managed or co-managed a public offering for Northwest Airlines in the past three years. It does not underwrite Delta.

Delta, which acquired

Comair

in November, now offers about 5,300 flights a day, to 362 cities in 58 countries with its codeshare partners. Northwest flies to more than 150 cities worldwide.