By DANIEL MICHAELS, SUSAN WARREN and BRUCE STANLEY, Staff Reporters, The Wall Street Journal

(June 6) - At a time when many U.S. carriers are still struggling to survive, much of the rest of the global airline industry appears to have pulled out of crisis and is entering the summer travel season in its best shape in five years.

Carriers in Asia and Europe are starting to see cost savings from several years of difficult restructuring. Passenger demand is ballooning in many markets, as a period of relative calm around the world allays travelers` fear of flying. That means some airlines are able to stanch their losses by raising fares -- and some are even strongly profitable.

The big exception is in North America, where several giant carriers are operating either in or near bankruptcy-court protection. U.S. airlines have been filling planes to record levels recently, surpassing demand seen before the terrorist attacks of Sept. 11, 2001. Still, much of that traffic has been stoked by aggressively slashing fares.

The U.S. airline market is lagging behind the rest of the global industry for a variety of reasons. After reaching unprecedented heights in the economic boom of the 1990s, U.S. carriers were hurt worse by the Sept. 11 attacks. And the U.S. industry remains an uncomfortable mix of rabid competition and government intervention -- such as loan guarantees and pension-obligation relief -- that allows weak carriers to limp along far longer than ailing businesses do in other industries.

Outside the U.S., where Chapter 11 bankruptcy protection doesn`t exist and many governments lack funds to prop up airlines, carriers have been faced since 9/11 with restructuring or going out of business -- and many have. Aiding the survivors, airlines outside the U.S. generally don`t face labor unions as strong as in the U.S., and few face the sort of free-for-all competition that U.S. carriers do.

Yet even in the U.S. there are at least some signs of an incipient pickup in travel. Carriers lately have scored a modest success: They have been able to raise fares slightly several times this year -- most recently this past weekend. Last year, U.S. carriers that raised fares quickly backtracked when rivals didn`t follow.

Full planes and rising ticket prices could offset some of the burden of high fuel bills. Oil prices pulled back sharply during May from record levels above $57 a barrel, but recently they have spiked higher again, to about $55 a barrel. The proposed merger of US Airways Group and America West Holdings also could help slightly by reducing the supply of seats on the market, because the airlines plan to pull planes from their combined fleet.

``Operating fundamentals are probably as good as they`ve ever been`` in the U.S., thanks to deep restructuring, ``although balance sheets are not,`` says John Heimlich, chief economist at the International Air Transport Association. ``If you didn`t have a couple of these exogenous factors`` such as fuel prices, he adds, ``you`d be in a position to make good profits.``

This nascent global pickup remains tenuous and could quickly disappear. A further spike in the price of oil, a major terrorist attack or an epidemic outbreak like that of SARS could slash demand for air travel or send airline costs skyrocketing. But any upturn is welcome for an industry that has lost more than $36 billion world-wide since 2001, according to the IATA.

For passengers around the world, the industry`s improving fortunes are a mixed blessing. Fliers who have grown accustomed to historically low ticket prices won`t welcome paying more. But airlines that are in less-dire financial condition also are more likely to offer better service, which can range from cleaning planes more frequently to adding back basic amenities recently removed, such as pillows, blankets and food.

In Asia and the Middle East, airlines actually are growing, posting big profits, and appear to have shaken the crisis. The giant markets of China and India are deregulating and growing quickly. Carriers in the more mature markets of Japan, Southeast Asia and Australia-New Zealand also are expanding operations and renewing their fleets.

Airlines in the Asia-Pacific region started restructuring earlier than their peers in America and Europe, following the region`s financial crisis of 1998. The SARS outbreak of 2003 forced many to streamline further, and the Asians now lead the global recovery.

``In Asia, we`ve got lower cost bases, tighter capacity and a much stronger demand recovery`` than in the U.S. or Europe, says Kevin O`Connor, an analyst with investment bank CLSA Asia-Pacific Markets in Hong Kong.

Hong Kong`s Cathay Pacific Airways, for example, saw net profit plummet by 67% in 2003, when fears of SARS choked Asian travel. Cathay squeezed costs and idled much of its fleet to limit the damage. Resurgent demand in 2004 enabled it to more than triple its annual earnings, in spite of a 50% year-on-year increase in Cathay`s fuel bill.

In Europe, several large, traditional airlines and budget newcomers are reporting solid results. Two of Europe`s largest carriers, Air France-KLM and British Airways, recently posted sharp rises in profits for the fiscal year ended March 31 and noted that high-profit business traffic is recovering from a recent slump.

``The results show that established carriers are able to deal with the cyclical crisis,`` said Ulrich Schulte-Strathaus, secretary-general of the Association of European Airlines in Brussels.

The airline industry`s improving outlook is likely to be a topic of debate next week at the Paris Air Show in France. One sign of better times has been a recent uptick in aircraft orders and deliveries at Airbus and Boeing Co. Rising from a six-year low of 586 planes shipped by the two in 2003, the rivals expect to deliver around 670 jetliners this year and more in 2006. Both Airbus and Boeing hope to announce more big orders at the Paris show.

In another sign that the industry`s gloom might be lifting, several recent orders have come from traditional North American carriers, including Continental, Northwest Airlines and ACE Aviation Holdings Inc.`s Air Canada. Since 2001, almost all airplane orders in North America were from no-frills carriers, which have grown at the expense of older airlines.

Still, the industry has a long way to go before it returns to health. Some carriers, such as Cathay Pacific, Australia`s Qantas and British Airways, have posted strong profits thanks to aggressive cost-cutting. Leading budget airlines, including pioneers Southwest Airlines and Ireland`s Ryanair Holdings, also are remaining profitable by staying true to their bare-bones model.

But for most airlines in the U.S., which for years had some of the world`s strongest airline labor unions, slashing overhead remains a way simply to avoid insolvency. Rising jet-fuel prices have far outstripped most airlines` ability to reduce overhead expenses such as labor, although unions are slowly yielding concessions as staffers choose to sacrifice benefits rather than face bankruptcy.

AMR Corp.`s American Airlines, the world`s largest carrier by traffic volume, won $1.8 billion in givebacks from its labor unions to avoid bankruptcy in 2003. Even Gerard Arpey took a pay cut when he took over as chief executive that year, and he passed up a pay raise last year. This year, staff get a 1.5% raise, although AMR lost $162 million in the first quarter. Delta Air Lines has warned of a possible bankruptcy filing and is trying to cut $5 billion in costs by 2006.

Underfunded pension plans are another big drag on airlines. US Airways and UAL Corp.`s United Airlines, both of which are operating under Chapter 11 bankruptcy-court protection, were able to escape their obligations through bankruptcy proceedings. On May 10, a court granted United permission to dump its pension plan on the government, which took over responsibility for paying out $6.6 billion -- far less than the original fund obligations. US Airways had already received a similar deal.

The two carriers` escape from their pensions has increased pressure on rivals to seek relief from their own burdens. The U.S. Congress is mulling legislation that could lighten the load on all airlines by giving them longer to pay off pension shortfalls.

This attempt to help U.S. carriers is raising trade tensions within the inherently international industry, however. British Airways and Germany`s Lufthansa, for example, both face major pension-funding challenges.

``The U.S. government is subsidizing the airline industry,`` charged Pierre-Henri Gourgeon, chief operating officer of Air France-KLM. In Europe, ``where no subsidies are possible, market strength forces the industry to adapt.``

European Union officials have been strict since 2001 in limiting state money to airlines, and EU governments resisted paying for services such as airport security that politicians in the U.S. and some other countries have moved to underwrite.

As a result, Europe`s struggling state carriers, including Italy`s Alitalia and Greece`s Olympic, are searching for private investors while losing market share to stronger rivals. A few state-owned carriers -- most notably Ireland`s successful Aer Lingus -- are even posting profits.