Updated from 10:11 a.m. EDT

Hamstrung by rising fuel costs, Northwest Airlines ( NWAC) continued to post deep losses in the first quarter, missing Wall Street estimates by a large margin.

Northwest announced a first-quarter net loss of $230 million, or $2.67 a share, an improvement from the $396 million, or $4.62 a share, it lost a year ago. While results are improving, they're well shy of the consensus estimate of a loss of $2.51 a share.

"We still face the same challenge. Our costs remain higher than the revenues we generate," said Richard Anderson, Northwest's CEO. "In addition, we did not have the benefit of non-core asset sales or federal government reimbursements reported in several recent quarters. Until we achieve competitive labor costs, we will be unable to generate a sustainable profit."

In reaction, shares of Northwest dropped 27 cents, or 2.6%, to $10.08. Heading into earnings season, Northwest was an analyst favorite, having topped estimates in the last eight quarters, including an unexpected profit of 49 cents two quarters ago.

Revenue came in at $2.6 billion, up 9.6% from the year-ago $2.4 billion. Although Northwest flew less than it did a year ago, expenses rose 3.4% year over year, excluding one-time items, driven by an 18% gain in the price of fuel. The carrier estimates that fuel prices added $64 million in costs during the quarter.

In order to cut costs, Northwest said it would continue to talk to unionized labor in hopes of reaching terms on wage concessions.

"We continue to update our union leaders on a regular basis about the financial challenges facing our airline," said Doug Steenland, company president. "We anticipate sitting down with our pilots and other labor unions in the near future to further our discussions, with the goal of achieving competitive labor agreements for all parties."

SkyWest Beats

Elsewhere, SkyWest Airlines ( SKYW), a regional carrier that flies for Delta Air Lines ( DAL), Continental Airlines ( CAL) and UAL ( UALAQ.OB), parent of United Airlines, announced net income of $19.4 million, or 33 cents a share, up from $13.3 million, or 23 cents a share, in last year's quarter. Analysts had expected SkyWest to earn 30 cents a share.

Revenue came in at $253.7 million, up 22.4% from $207.4 million last year. But while the carrier flew more often, with capacity up 27.6% over last year as measured in available seat miles, it didn't earn as much to do so. Revenue per available seat mile, a key metric known as RASM, declined 4.4% over last year, because SkyWest flew more regional jets, which have fewer seats.

In reaction, shares of SkyWest were off 29 cents, or 1.5%, to $18.61 on Wednedsday.