US Airways Leads Airlines Higher

CHARLOTTE, N.C. (TheStreet) -- Shares in US Airways (LCC) were leading airline stock prices higher Thursday, reflecting the carrier's unhedged position as oil prices fall, combined with continuing merger speculation.

Most airline shares were rising after three analysts this week upgraded the entire airline industry, which is a beneficiary of falling oil prices, continuing strong demand, industrywide capacity discipline, and ancillary revenues -- mainly from bag fees -- that total about $1 billion annually at the big three airlines and $500 million annually at US Airways.

Airline operating profits should rise 55% in 2012 and another 40% in 2013, JPMorgan analyst Jamie Baker wrote in a report, issued Thursday, which apparently was a key factor in Thursday's price gains. In mid-afternoon trading, US Airways shares were up $1.04 or 9.5% to $12.11. The shares are up about 132% for the year and trading at their highest level since November 2010.

Also, shares in United (UAL) were up $1.13 or 5% to $23.56, while Southwest (LUV) shares were up 36 cents or 4% to $8.74 and Delta (DAL) shares were up 43 cents or 4% to $11.22.

"Lower fuel has a material impact (and) jet fuel prices have collapsed roughly 40 cents per gallon since February, representing an annualized $5.5 billion windfall for the industry," Baker wrote. "Yet, since the end of earnings (season) consensus has barely budged.

"Consensus appears wholly inadequate to us," he said.

Baker raised year-end price targets to $39.50 from $37.50 for Alaska (ALK) ; to $17 from $14.50 for US Airways; to $38 from $35 for United; to $9 from $8.50 for JetBlue (JBLU) ; and to $12.50 from $12 for Southwest. (JP Morgan is restricted regarding Delta due to involvement in an ongoing transaction.)

Baker's upgrades follow similar actions earlier this week by Dahlman Rose analyst Helane Becker and Bank of America Merrill Lynch analyst Glenn Engel, who also raised estimates for all carriers.