Falling labor costs at AMR ( AMR), parent of American Airlines, allowed the carrier to top Wall Street estimates and offset the rising price of fuel, unlike Northwest Airlines ( NWAC), which missed estimates and reiterated a plan to cut employee wages.

American, the world's largest airline, announced a first-quarter net loss of $166 million, or $1.03 a share, a dramatic improvement from the year-ago loss of $1.04 billion, or $6.68 a share. Wall Street expected the carrier to lose $1.04 a share in the first quarter.

Revenue came in at $4.5 billion, up 9.5% from last year's $4.1 billion, and better than the $4.4 billion expected by analysts. In reaction, shares rose 57 cents, or 4.7%, to $12.60.

"We are never satisfied to be reporting net losses, but we are nonetheless pleased with how far we have come over the past 12 months," said Gerard Arpey, president and CEO. "It is also worth noting that the first quarter is seasonally a difficult quarter -- and that difficulty has been compounded this year by extremely high fuel prices."

American spent 10.8% more on fuel than it did a year ago, but the company's total expenses dropped 10.4% thanks to deep wage concessions from employees. All told, the carrier's labor costs dropped 21.8% year over year, with cost per available seat mile, a key metric called CASM, coming in at 9.49 cents, down from 11.39 cents a year ago.

"Our success in removing costs from the operation has paved the way for our improved results and has given us the ability to stand and fight, rather than retreat and shrink," said Arpey.

Indeed, American has opted to expand capacity in order to fight off low-cost competitors like JetBlue ( JBLU) and Southwest Airlines ( LUV), which have been adding transcontinental routes. In the first quarter, the company said capacity, as measured in available seat miles, rose 5.8%, while traffic, as measured in revenue seat miles, rose 8.8%.

With demand outstripping supply, the company said it filled 71.1% of seats, up from 69.1% a year ago. But American used cheap seats to entice people to fly, a sign the industry may be adding too much capacity, and yields were slightly weaker than last year's quarter.

Northwest Slumping

Hamstrung by rising fuel costs, Northwest continued to post deep losses in the first quarter, announcing 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.

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. Despite the fact that 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 fuel prices added $64 million in costs during the quarter. (For more on Northwest's earnings, click here.)

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