WASHINGTON (Reuters) - The biggest US airlines turned in their best quarterly performance in years, reversing losses from a year ago to earn more than $1.6 billion on strong business and overseas travel.

United Continental Holdings Inc., the new industry leader, said yesterday that both its United and Continental divisions swung to the black. Southwest Airlines Co., the traditional low-fare champion, topped Wall Street profit views after posting a rare loss a year earlier.

The results came a day after strong reports from Delta Air Lines Inc., American Airlines parent AMR Corp. and US Airways Group.

The six airlines combined had nearly $600 million in losses in the same period a year ago.

"The industry is doing unbelievably well in an environment where they've right-sized their fleet, they've been able to maintain costs and they haven't been affected by rising oil prices," Morningstar analyst Basili Alukos said.

Airline executives and analysts were upbeat on year-end bookings and revenue projections, but noted the recovery had not reached full strength.

Southwest said business travelers had not fully returned to the skies, a factor that could offer potential upside.

"We think the trends that we will expand this year are in line with our belief that this is going to be a long slow recovery," said Jim Compton, chief revenue officer at United Continental, on a conference call with reporters and analysts.

Southwest and Delta held on to share gains through the afternoon, but some airline stocks fell as the dollar rebounded from earlier losses and the broader market trimmed its gains. The Arca Airline index was off about 0.7 percent.

Mergers and their effect on reducing available seat capacity have contributed to airlines' ability to raise fares and generate heftier revenues, even as fuel costs moved noticeably higher year-over-year and the US economy remained sluggish - two stubborn concerns.

Several carriers reported record revenues for the quarter, helped in part by bag and other fees. Airlines do not break out luggage fees, but data collected by the Transportation Department shows carriers collected about $275 million in bag fees in September alone.

The industry was expecting future gains as long as fuel prices did not spike and companies countered higher costs with higher fares and fees. Southwest, for one, cited strong demand for the rest of the year, but cautioned that fuel was a concern, especially for 2011.

The economy and fuel are "two unknowns that the airlines don't have much control over," said Majestic Research analyst Matthew Jacob.

"I think the airlines can offset the impact of increased fuel prices if they are driven by significant improvements in the economy," Mr. Jacob added.

UAL's quarterly profit was $387 million, or $1.75 a share, compared with a loss of $57 million, or 39 cents a share, a year earlier. Continental had a net profit of $354 million, or $2.16 a share, compared with a loss of $18 million, or 14 cents per share, a year ago.

The airlines combined this fall to form the world's biggest carrier, but continue to operate separately while they pursue a single operating certificate from the government.

Their merger followed the marriage of Delta and Northwest in 2008 and preceded Southwest's announcement last month that it would buy low-cost rival AirTran Holdings . The move signaled Southwest's intention to take on major carriers more directly in big markets.

Southwest returned to profitability with net income of $205 million, or 27 cents a share. Low-cost carriers JetBlue Airways and Alaska Air Group also reported record quarterly profits yesterday.

Delta shares were up 2.1 percent in afternoon trading while Southwest added 2.6 percent. United Continental eased 14 cents to $27.49 while AMR fell 1.4 percent.