NEW YORK (CNN/Money) - Never have improved results looked as bad as they do for the airline industry in the recently completed fourth quarter.

When major airlines start reporting results Wednesday, most are expected to report narrower losses than in the year-earlier period. But that period was in the immediate wake of the Sept. 11 terrorist attack.

Among the nation's 10 largest airlines, only discount carrier Southwest Airlines (LUV: Research, Estimates) is expected to post a profit, and the consensus earnings per share forecast is a narrow 3 cents, half the profit level forecast three months ago.

The other major airlines have seen their fourth-quarter loss estimates all soar between 14 and 70 percent in the last three months, although all except bankrupt United Airlines parent UAL Corp. (UAL: Research, Estimates) and American Trans Air parent ATA Holdings (ATAH: Research, Estimates) are expected to reduce the losses from year-earlier results.

Tuesday, airline analyst Ray Neidl cut his rating on three of the nation's five largest airlines -- American Airlines parent AMR Corp. (AMR: Research, Estimates), Northwest Airlines (NWAC: Research, Estimates) and Continental Airlines (CAL: Research, Estimates) -- to "hold" from his previous "buy" recommendation.

He also widened his fourth-quarter and 2003 loss estimates. He now expects industry-wide losses for 2002 to reach $7.9 billion, up from a $7 billion forecast three months ago. He sees $3.6 billion in losses this year, and a return to profitability possibly not occurring until 2005.

Neidl said myriad problems are worsening for the industry, including prolonged stagnant economic growth, weaker than expected fares, partly due to disruptive pricing by United as it operates in bankruptcy, massive pension shortfalls now coming to light and a large spike in fuel prices due to Venezuelan crisis and possible war with Iraq.

"Our thesis remains that the stocks of major network carriers are cheap relative to their underlying asset values, but we prefer to remain on the sidelines as increased concerns over Iraq, a spike in oil prices, lessened travel and losses continue to overshadow the industry," he said. Only a quick resolution of the dispute in Iraq or the halt of operations by United could lift the other stocks in the sector anytime soon, he said.

Jim Corridore, airline equity analyst with Standard & Poor's, said this is a risky time to be investing in the sector due to such poor visibility. He said he believes the industry loss estimates may have now swung low enough to allow most of the carriers to beat the lowered expectations, but he said that will be no reason to hold out hope for any one carrier or the industry as a whole.

"It's certainly going to be much worse than we all expected it to be by now," he said. "I would caution people not to get too excited about someone who's loss is 25 cents less than expected."

Corridore said the industry needs to cut capacity significantly to see any improvement in fares and a return to profits, but the major carriers aren't making as much progress in that regard as their stated plans suggest. Traffic figures from the seven largest airlines show capacity in the fourth quarter down only 2 percent from the average capacity level for the first three quarters of the year.

"That's less than the normal seasonal decline," he said. "Typically they take capacity down 3 percent from the first three quarters of the year, because this is their slowest period. They all indicated they were going to be cutting more than they apparently did."