As expected,

Delta Air Lines

(DAL) - Get Report

reported steep losses for the first quarter, but management said signs of a gradual recovery were evident.

The third-largest U.S. carrier announced first-quarter losses of $354 million, excluding unusual items, or $2.90 a share. Despite issuing a warning on March 2, earnings missed analyst estimates for losses of $2.87 a share, according to Thomson Financial/First Call. The company lost $1.02 a share in the year-ago quarter.

But company executives remain optimistic that Delta can overcome the loss of business after Sept. 11 and see slow improvement. "We continue to see signs of gradual recovery," said Leon Mullin, Delta's CEO and chairman in a press release. "In the first three months of this year, we saw our customers and revenue returning, though revenues are recovering at a slower pace. There is still a long road ahead of us."

Quite a long road. First-quarter operating revenue dropped 19.3% year over year, to $3.10 billion from $3.84 billion. While Delta said its recovery was on track, one cash cow is missing from the barn. "Weakness in high-yield business travel will continue to affect the pace of Delta's recovery," the company said.

Load factors came in at 68.9%, on a 10.6% reduction in capacity, or the number of

available seat miles. As

yesterday's earnings release from

Continental Airlines'

(CAL) - Get Report

highlighted, capacity is a sticking point for a recovery because oversupply will make it difficult to raise prices while demand remains weak.

Indeed, the industry has had trouble raising prices from the depressed levels reached after Sept. 11. Friday's Continental-led effort to hike domestic round-trip rates failed when

Northwest Airlines

(NWAC)

refused to go along.