Sector snap: Airlines mostly rise as oil eases

The Amex Airline Index added 1 percent to 22.11 in late morning trading, its first gain in more than a week. The broader market also advanced, with the Dow Jones industrial average rising 0.7 percent to 12,834.87.

Light, sweet crude for June delivery jumped to a new record of $126.40 a barrel on the New York Mercantile Exchange before falling back to $125.35, down 61 cents.

Airline stocks often move opposite oil prices because fuel now represents many airlines' biggest cost.

Among the sector's biggest gainers midday were American Airlines parent AMR Corp., up 29 cents, or 3.5 percent, to $8.48; US Airways Group Inc., up 11 cents to $7.19; and JetBlue Airways Corp., up 11 cents, or 2.4 percent, to $4.69.

In a note to investors, Calyon Securities analyst Ray Neidl said he believes the 10 publicly traded U.S. airlines he follows have enough cash and resources to make it through the year even if oil prices ended up averaging $150 a barrel for the year.

"However, by the end of the year most airlines would be under great strain, particularly if revenue were to decline due to an economic slowdown," he said, adding that carriers are unlikely to let their cash levels drop "to dangerous levels," and would cut additional capacity or look for ways to raise more cash instead.

In recent weeks, major carriers have announced plans to slash capacity or slow growth more than initially planned. Budget carrier AirTran Holdings Inc. last month announced plans to raise cash through a stock and convertible note sale, and other airlines have floated the prospect of selling off frequent flier units or other divisions.

Neidl said reorganization under bankruptcy protection -which kept some of the biggest carriers afloat in the last economic downturn -may not be an option this time around.

"Most airlines accomplished most of what they can in previous reorganizations, so the next filings could result in liquidation," he said. "Liquidation of certain carriers, if it were to happen, would sharply cut the number of seats in the market, firming ticket prices and allowing for survival of the remaining carriers, in our opinion," Neidl added.

AirTran shares rose 5 cents to $3.40. Delta Air Lines Inc. slipped 9 cents to $7.56.