Ahead of the Bell: Airlines near a tipping point?

William Greene said that in time, higher oil prices will lead to greater financial problems and restructuring for airlines. Airlines that do not go bankrupt will respond by reducing flights even further, which will help the stocks.

Greene believes the restructuring is "inevitable" within the next year, because carriers are running out of cash due to record oil prices. Some airlines will have cash problems in early 2009, he wrote, although that could come sooner if fuel prices go higher.

While airlines are able to reduce flights to lower their costs, Greene said it is difficult for them to make those adjustments quickly enough to keep up with the rising cost of fuel.

To counteract the increase in fuel prices, he thinks airlines need to lower capacity by about 15 percent and get strong international results. He said so far, carriers have trimmed about 10 percent of their capacity.

Greene upgraded JetBlue Airways Corp. shares to "Equal weight" from "Underweight," saying it has good access to cash compared to its rivals. He downgraded shares of Continental Airlines Inc. to "Equal weight" from "Overweight," since he thinks that company's liquidity is weak.

Shares of Forest Hills, N.Y.-based JetBlue rose 11 cents, or 2.8 percent, to $4 in premarket trading. JetBlue stock finished at $3.89 Monday. Shares are down 34.1 percent in 2008.

Continental shares picked up 31 cents at $14.46 premarket, from Monday's closing price of $14.15.