NEW YORK (CNN/Money) - American Airlines parent AMR Corp. posted a sharply narrower loss for the second quarter and said it actually made money in June, as it easily flew under Wall Street red ink forecast for the period.

The world's No. 1 airline said it lost $357 million, or $2.26 a share, in the quarter, excluding special items such as federal assistance payments to deal with security costs. That compares with a loss of $3.00 a share a year earlier, according to earnings tracker First Call. First Call's consensus loss per share forecast was $2.75.

The period began with AMR facing a significant risk of a bankruptcy filing through most of April. But agreements with its unions that averted bankruptcy, which went into effect in May, will help the airline save $1.8 billion a year in labor costs and resulted in a 12.1 percent reduction in wages and benefits paid in the quarter, compared with a year earlier.

Airline fuel costs were also slightly lower than a year earlier and down 11 percent from the first quarter, when fuel prices spiked before the start of the war in Iraq. But the reduced spending on fuel was mostly due to a 10 percent year-over-year reduction in fuel consumption from the cuts in schedule. The amount paid per gallon is actually up 10 percent compared to a year earlier.

Including special items such as the $358 million in federal assistance, AMR reported a net loss of $75 million, or 47 cents a share in the quarter, compared with a net loss of $495 million, or $3.19 a share, a year earlier.

Revenue fell 4.1 percent to $4.32 billion, as a drop in air traffic and continued weakness in fares hurt top-line results. It was only slightly below the $4.36 billion First Call revenue forecast.

"The positive news is we're making progress on the cost front, led by painful concessions by our employees and suppliers," said Chief Financial Officer Jeff Campbell. "The tougher news is while the revenue environment has improved, it's still depressed by historical standards."

Campbell and CEO Gerald Arpey said that there are some signs of improvement in bookings by business travelers, but it's too soon to say when traffic will pick up enough to lift the company back to sustained profitability.

Shares of AMR (AMR: up $0.86 to $11.42, Research, Estimates) were up about 7 percent in afternoon trading Wednesday, with most of that gain coming after the late-morning financial report.

The improved outlook is not unique to AMR.

U.S. airlines, most of which started reporting losses in early 2001, months before the Sept. 11 terrorist attack provided a body blow to demand for air travel, are expected to post generally better results in the quarter.

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Analysts will be watching closely as the troubled major airlines start to report second-quarter financial results this week and give an initial peek at early summer traffic levels.

"This summer is going to be crucial," said Ray Neidl, an analyst for Blaylock & Partners, about the industry in general. "If this summer is worse than expected, we could have new talk of bankruptcy in the fall. Even if it's good, I don't see them returning to profitability until the third quarter of next year at [the] earliest."

Neidl has "hold" recommendations on all the major money-losing carriers he follows and has small non-traded positions in Northwest and Delta shares

Air traffic numbers for the second quarter were down for the most part. The nation's 14 largest airlines saw miles traveled by paying passengers fall 5.6 percent, according to figures from the Air Transport Association, the industry trade group.

But the airlines cut capacity by even more, about 7.5 percent, and the lower staffing levels and fuller planes should help them post better results. Fuel costs, the second largest cost after labor, has also seen improvement for the carriers since the start of the war in Iraq in March.

The airlines are therefore reporting fuller planes even with reduced demand for traffic. No. 5 carrier Continental Airlines (CAL: Research, Estimates) filled 81 percent of its capacity in June, its best load factor ever and 2.3 percentage points above year-earlier levels, even with a 1.5 percent drop in miles flown by passengers.

At American, miles flown by passengers fell about 4 percent in the quarter to 30.2 billion, but capacity was cut by 7.7 percent. That lifted the average load factor to 74.4 percent from 71.4 percent. But the average amount paid by passengers for every mile flown slipped 1.7 percent to 11.74 cents, showing the continued weakness in air fares.

The airline did not give any specific guidance for losses the rest of this year or next. It said it will continue its cost-cutting efforts and announced it will close a reservations office in St. Louis, effective Sept. 15. It also is cutting back about half its daily flight in St. Louis as it basically eliminates the hub it has operated there since buying TWA in 2001.

The loss estimates for the second, third and fourth quarters have been diminishing for AMR since its brush with bankruptcy in April. They also have been narrowing for No. 3 Delta Air Lines (DAL: Research, Estimates) and Continental.

No. 4 Northwest Airlines (NWAC: Research, Estimates) has seen its third- and fourth-quarter loss estimates widening in recent months, though, and it is also expected to see bigger second- and third-quarter losses and only a modest improvement in the fourth quarter.

All those airlines, which are set to report results Thursday, are engaged in cost-cutting efforts of their own as well as negotiations to reduce labor costs.

The quarter also saw bankrupt No. 2 carrier United Airlines report it was in the black in May, its first profitable month since the spring of 2000, as it benefited from its own set of new labor pacts. It is also expected to post a smaller loss in the second quarter, although far fewer analysts follow the stock since it was delisted earlier this year after its December bankruptcy.