An industry fare war negatively impacted airlines' unit revenue last summer. However, demand has surged since then, allowing most airlines to beat their initial unit revenue forecasts in the fourth quarter of 2017.

The strong demand trends appear to have continued this quarter. Earlier this week, three of the six largest U.S. airlines -- United Continental (NYSE:UAL), Delta Air Lines (NYSE:DAL), and JetBlue Airways (NASDAQ:JBLU) -- increased their unit revenue guidance ranges for the first quarter of 2018.

JetBlue's unit revenue recovery continues

Entering the fourth quarter, JetBlue Airways expected revenue per available seat mile (RASM) to decline due to the industry pricing battles that began over the summer, as well as the negative impact of Hurricanes Irma and Maria on travel demand in Florida and the Caribbean -- two of the carrier's key markets. However, the revenue environment improved dramatically over the course of the quarter. As a result, RASM ultimately rose 1.8% in Q4.

In January, JetBlue projected that RASM would rise 2.5%-5.5% in the first quarter, including a 2-percentage-point net benefit from the timing of holidays. On Monday, it updated that forecast. JetBlue now expects RASM to rise 3.5%-5.5% this quarter.

A JetBlue Airways plane preparing to land

JetBlue's unit revenue momentum has accelerated this quarter. Image source: JetBlue Airways.

This implies a solid improvement in revenue trends relative to the fourth quarter, even without the benefit from an early Easter. Clearly, Delta's ongoing expansion in Boston, where JetBlue is the largest airline (a key concern for some investors) -- isn't hurting JetBlue's revenue performance very much.

United and Delta also note improving trends

At an investor conference on Tuesday, United Continental and Delta Air Lines joined JetBlue in increasing their first quarter unit revenue forecasts. United's initial first quarter guidance called for a 0%-2% uptick in passenger unit revenue. While this would have been slightly better than the 0.2% increase it logged in the fourth quarter, it still would have left United well below the industry average in terms of revenue performance.

United Continental now expects passenger unit revenue to rise 1%-3% this quarter, with trends improving in all major regions of the world. Cargo revenue will probably continue to be a tailwind as well. United is still lagging many of its peers in terms of unit revenue growth, but at least it is starting to close the gap.

Meanwhile, Delta Air Lines entered the first quarter expecting to post a solid 2.5%-4.5% RASM gain. With leisure and business demand both continuing to improve, the carrier has now raised its quarterly RASM growth guidance to 4%-5%. This should put it near the top of the industry in terms of unit revenue growth.

Looking ahead

Obviously, the increased unit revenue forecasts at JetBlue, United, and Delta represent good news for those carriers and the airline industry as a whole. Airline stock valuations remain very modest -- JetBlue stock trades for less than 12 times forward earnings, while shares of United and Delta trade for about nine times forward earnings -- so an increase in revenue and earnings expectations could cause investors to send these stocks much higher.

That said, investors may want to wait for further confirmation of the improving revenue trend when the airlines provide their second quarter outlooks next month.

For example, JetBlue will likely face a 2-3 percentage point headwind from the timing of Easter next quarter. Delta Air Lines will have to overcome significantly tougher year-over-year unit revenue comparisons. Lastly, United's controversial plan to accelerate its capacity growth will start to kick in during the second quarter, which may hurt unit revenue in the near term.

However, if the airlines project that unit revenue will remain solidly in positive territory during the second quarter, it would signal that the industry is finally experiencing a durable revenue recovery. That could spark a big rally in airline stocks.

Adam Levine-Weinberg owns shares of Delta Air Lines and JetBlue Airways is long January 2019 $10 calls on JetBlue Airways. The Motley Fool recommends JetBlue Airways. The Motley Fool has a disclosure policy.