Sector Snap: Airlines rally with broader market, oil prices

The Amex Airline Index jumped 2.2 percent to 24.24. The broader market also soared, with the Dow Jones industrial average rising 2.1 percent to 12,885.92.

The sector's strong performance was unusual because airline shares typically fall as oil prices rise, as fuel represents one of the industry's biggest costs. On the New York Mercantile Exchange on Friday, light, sweet crude for May delivery rose to a new record of $116.10 before retreating to trade up 56 cents at $115.42 a barrel.

In the latest sign that carriers are managing to push more fuel costs onto passengers, airlines this week raised fares in a number of markets. Assuming the increases hold, it will be the second time in about a week carriers managed to lift ticket prices.

"The only thing I can assume is they're not worried about demand. They know they're going to pack the planes," said Rick Seaney, chief executive of airfare research Web site FareCompare.com.

Airlines have helped shore up their pricing power by shedding less-profitable domestic routes. AMR Corp.'s American Airlines and Continental Airlines Inc. this week each announced plans for further capacity cutbacks, and Southwest Airlines Co. said it would slow its expansion plans.

So far, the effort appears to be paying off.

"Despite a weakening economy, demand remains strong; load factors should stay high as airlines accelerate capacity cutbacks," Calyon Securities analyst Ray Neidl said in a note to investors. He added, however, that "with oil at $115 per barrel, the outlook is somber."

AMR shares jumped 21 cents, or 2.5 percent, to $8.75. Continental rose 91 cents, or 4.3 percent, to $22.02. Southwest advanced 7 cents to $12.68.

Investors seemed to be taking heart that a number of companies' first-quarter earnings figures both inside and outside the airline industry were not as bad as some on Wall Street had feared. Results Thursday night and Friday from key companies such as Citigroup Inc. and Google Inc. helped ease concerns that the economy may not be in such bad shape and that higher-paying business travelers will continue flying.

Airline investors also kept up hope for further consolidation after Northwest Airlines Corp. and Delta Air Lines Inc. announced plans to combine earlier in the week. In separate client notes, analysts from Credit Suisse and UBS each resurrected the possibility of a deal between Continental and UAL Corp.'s United Airlines.

UAL shares rose 47 cents, or 2.1 percent, to $22.87.