updated 5/7/2009 4:27:58 PM ET 2009-05-07T20:27:58

Passenger traffic is still falling on nearly all U.S. airlines, but the steep nosedive in March gave way to a more gentle decline in April, raising hopes that the worst of the travel slump may be over.

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But analysts say it's too early to declare a turning point for the airlines, which suffered huge losses and falling revenue in the first quarter.

They say the increase in traffic is coming from budget-conscious consumers who are reacting to cheap sales.

"Airlines have decided it's better to sell seats potentially below cost and generate some cash flow while they can, rather than not sell those seats at all," Stifel Nicolaus & Co. analyst Hunter Keay said Thursday. "If you're flying across the country for $99, that's below cost."

Airlines measure traffic in miles flown by paying customers — it doesn't matter how much they paid.

UAL Corp.'s United Airlines reported that last month's traffic declined 10.5 percent compared with April 2008, but the declines were much smaller at Delta Air Lines Inc., AMR Corp.'s American Airlines and others.

Southwest Airlines Co. beat everybody with a 4.1 percent increase in traffic, which it credited to Easter falling in April this year instead of March last year.

Even if travel demand is no longer in a free-fall, the best customers — high-paying business travelers — could be slower to return. The airlines say travel is one of the first items businesses cut during a recession, and they have seen more corporate travelers switch from first-class to cheaper coach seats.

The average one-way fare paid by corporate travelers within the U.S. in the first quarter was $213, down from $246 for all of 2008, which only partly reflects cheaper fares, according to American Express Business Travel.

"Many companies are finding ways to keep their people on the road, but more business travelers are flying coach and opting for less-expensive hotels," said Frank Schnur, the business travel group's vice president of global advisory services.

Schnur said companies that have discounted deals with one airline are also making sure that employees use that airline, even if another carrier has a more convenient flight.

U.S. airlines don't break out premium travel on a monthly basis, but British Airways said demand for first- and business-class seats tumbled 17.7 percent in April — even sharper than the 13 percent decline in March — while other traffic increased 5.2 percent.

The British Airways report also points to continuing weakness in international travel, which went into a tailspin after U.S. domestic flying had already slowed.

All the major U.S. airlines reduced capacity last month — flying fewer flights or smaller planes — to save money and pinch the supply of airline seats.

United led the pack by slashing capacity 10.2 percent compared with April 2008, but others made sharp reductions too. As a result, most flights were a bit more crowded than they were a year ago, especially on Southwest, AirTran and Continental.

"The airlines have all decided it's in their best interest to cut capacity to wherever demand is," said Roger King, an analyst for CreditSights. "They've been chasing that for a while, and they're getting closer."

Continental provides more information about its monthly performance than most airlines, and it gave one other interesting tidbit. The Houston-based airline said a closely watched measurement called unit revenue — sales as a ratio of capacity — fell 12 percent in April after diving 20 percent in March.

A smaller decline is still a decline, of course, and now the airlines face worries over swine flu.

Continental cut its capacity to Mexico by 50 percent because there were so many empty seats on flights from the United States. American, US Airways and Delta also reduced their capacity to Mexico, where most swine flu deaths have occurred. But even in the case of Continental, the leading U.S. carrier to Mexico, the cutbacks will reduce worldwide capacity in May by only 2 percent.

Even with traffic below last year's levels, airlines are enjoying a windfall from lower fuel prices than last year. Despite that cost break, analysts still expect three of the six largest U.S. airlines to lose money in the second quarter and for all of 2009. But analysts' sentiment has swung wildly in recent months due to the uncertain revenue outlook.

Southwest still says unit revenue could be worse in the second quarter than the 2.8 percent drop in the first. Chief Executive Gary Kelly said Southwest had a "decent" January, followed by falling unit revenue the rest of the first quarter.

"Trends did worsen through the first quarter," he said. "That alone makes it difficult for the second quarter to match what we did in the first quarter. On top of that you add this (swine) flu, that's certainly not going to help."

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