Updated from 12:25 p.m. EDT

UAL

(UAL) - Get Report

, parent company of

United Airlines

, said Thursday that it lost $64 million in the third quarter, as the world's largest airline struggled with operational disruptions, higher fuel prices, and increased labor costs.

Trans World Airlines

(TWA)

, the eighth-largest U.S. carrier, also lost money in the third quarter, though its results, also reported Thursday, were better than Wall Street expected.

Meanwhile, shares of

Northwest Airlines

(NWAC)

surged Thursday after the world's fourth-largest carrier topped Wall Street estimates with a 15% increase in third-quarter earnings, as it picked up some of United's lost customers and expanded its cargo operations.

Northwest Airlines reported unexpectedly strong third-quarter earnings of $207 million, or $2.23 a share, up sharply from $180 million, or $1.96 per share in the year-ago period, despite a 59% jump in fuel costs. On average, analysts surveyed by

First Call/ Thomson Financial

had expected earnings of $1.98 per share.

Northwest Airlines finished Thursday regular trading up $1.31, or 6%, at $22.31.

UAL Shares Rise, Despite Loss

UAL shares also rose, surprisingly, given the disappointing loss it reported. But analysts say the company had issued so many profit warnings that the anticipated losses were already priced into the current stock level. In addition, the exclusion of employee-owned shares exaggerated the per-share losses UAL reported.

United's losses per share were calculated using only the 52 million shares outstanding of common stock, in accordance with general accounting principals during periods of loss. Had the calculations taken into account the 65 million shares of stock owned by its employees, the losses would have been cut in half on a per-share basis -- much closer to the consensus estimate.

That could explain, in part, the market's reaction to United's announcement. UAL finished Thursday regular trading up 50 cents, or 1%, at $36.81. The stock price had fallen to a new 52-week low of $36.25 a day earlier.

Robert Milmore, airline analyst at

Arnhold & S. Bleichroeder

, said much of United's anticipated losses were already priced into the stock. "I think the stock is near its bottom given the way it's been hammered," he added.

In UAL's first money-losing quarter in five years, the Chicago-based company on Thursday reported third-quarter losses of $1.29 per basic share, more than double the Wall Street consensus estimate of a loss of 54 cents a share, according to First Call/Thomson Financial. UAL had earned $359 million, or $2.89 per diluted share, in the same period a year ago.

Just two months ago, analysts had

forecast, on average, earnings of $3.55 a share for the third quarter. Since then, UAL has issued a series of profit

warnings, and analysts a series of revisions.

Causes of United's 3Q Blues

"The third quarter was a difficult period for United," said James Goodwin, UAL's chairman and chief executive, in a statement Thursday. "Revenue performance suffered significantly from the operational disruptions we experienced throughout the quarter."

United suffered from massive delays and cancellations this summer due to the inauspicious combination of unusually bad weather at its hubs, air traffic control back-ups and labor-related disruptions.

The airline posted the worst on-time

record and logged the most complaints in the industry this summer, according to the

Department of Transportation

TheStreet Recommends

. In June, July and August, less than half of all United flights arrived on time. The airline was also forced to cancel thousands of flights after union pilots exercised their right to refuse overtime work.

United reached an

accord with its more than 10,000 union pilots early last month, but Goodwin said the "financial implications" of the agreement had a negative impact on the company's earnings for the quarter. Under the deal, pilots got immediate pay hikes of more than 21%. That helped account for the nearly $1.9 billion in salaries and related costs last quarter, a 19% jump from a year ago.

Despite its hedging program, United's profits were also hurt by surging oil prices. Its jet fuel costs rose almost 43% from a year ago, to $664 million last quarter.

Goodwin said flight cancellations have dropped 60% this month, while on-time departures have improved by 40% since the peak of the summer disruptions. Still, United faces a tough task in bringing back frustrated passengers who fled to rival airlines like

AMR

unit

(AMR)

American

and

Delta

(DAL) - Get Report

, despite issuing televised apologies and bonus frequent flyer miles to passengers.

"The key issue going forward is how quickly they can regain the confidence of the consumer," said Arnhold & S. Bleichroeder's Milmore. "The best way to get the consumer back is to run a solid operation. They're making progress in that."

Still, United faces the prospect of more labor-related disruptions and increased salary expenses as it negotiates a new contract with its 44,000 union ground workers, including mechanics and customer service representatives. The favorable pilots' agreement and the unusually tough working conditions this summer also prompted

flight attendants to re-open wage talks with the airline.

Milmore, whose firm maintains a neutral rating on UAL and does not underwrite the company, said United faces further losses from rising fuel costs. It does not have a hedging program in place for 2001. In addition, the airline, which is heavily dependent on its business travelers, could lose more passenger revenue if the economy slows and corporate travel budgets are cut.

The recent troubles couldn't come at a worse time for United, which is in the midst of trying to buy

US Airways

(U) - Get Report

, the nation's sixth-largest carrier. While a vast majority of US Airways shareholders

approved the $4.3 billion offer earlier this month, the deal still faces regulatory approval.

United's Loss Is Northwest's Gain

But United's summer troubles benefited other airlines, like Northwest, which led the industry with a passenger load factor of 79.7% in the quarter, its highest ever, according to John Darsburg, Northwest's president and chief executive. The airline also had one of the best on-time records among major carriers.

In a research note issued earlier this week,

PaineWebber

analyst Sam Buttrick estimated Northwest would be the third-biggest beneficiary of United's operational disruptions (American and Continental were the first). He estimated the benefit of additional revenue from passengers who'd abandoned United would have an impact of about 20 cents per share on Northwest's earnings.

Indeed, Northwest reported strong growth in demand throughout its international operations. Northwest's passenger revenue grew nearly 12% to $2.74 billion in the third quarter, while revenues from cargo operations jumped more than 20% to $220 million. Strong revenue growth helped offset higher fuel and salary costs.

TWA Trims Losses

St. Louis-based TWA said it was also able to overcome surging fuel costs to post a pretax loss of $34 million in the third quarter, or 49 cents per share, beating the estimate among analysts surveyed by First Call/Thomson Financial who had expected on average a loss of 62 cents per share.

TWA's third-quarter losses were offset in part by a gain of $10.4 million from the company's share of a favorable litigation judgment. Still, the third-quarter results are a large improvement from the same period a year ago, when TWA lost $54.2 million, or 87 cents per share.

"TWA reported further progress toward profitability despite the heavy burden of fuel price increases. We built on the positive performance indicators we observed last quarter and believe new initiatives announced in the third quarter will continue our progress in a very competitive and challenging environment," said William F. Compton, president and chief executive, in a statement.

Operating revenues for the quarter were $972.7 million, increasing 11% $876.4 million in the third quarter of 1999.

But operating expenses for the quarter increased to $983.7 million, up 9% from $901.8 million in the third quarter of 1999. TWA officials said much of that increase can be attributed to a $58.9 million increase in fuel costs, a $29.3 million increase in aircraft rentals and a $9.0 million jump in salaries, wages and benefits.

Trans World Airlines closed Thursday regular trading down 2 cents, or 1%, at $1.43.