Airline stocks rose on Thursday after a J.P. Morgan analyst raised his estimates of the companies' future profits because of the recent drop in jet fuel prices.
The Amex airlines index rose 2.3 percent in midday trading. Many individual airline stocks rose even more sharply, led by a nearly 10 percent gain for US Airways Group Inc.
The Gulf Coast spot market price for a gallon of jet fuel has fallen about 12 percent in the past three weeks to $2.88 per gallon, according to government figures. It was more than $3.30 per gallon in February.
J.P. Morgan analyst Jamie Baker estimated that the pullback of about 40 cents per gallon would create an annual "windfall" of $5.5 billion for the airlines, a savings that had not been factored into most forecasts of airline profits. Meanwhile air travel demand, which affects the carriers' revenue, appeared to be holding up, he said.
Baker raised his estimates of 2012 profit and issued 2013 forecasts above the consensus view of other analysts for six airlines: United, Delta, US Airways, Alaska Air and discounters Southwest and JetBlue. The increase in his 2012 projections ranged from 33 percent for US Airways to 2 percent for Alaska Air.
The analyst said airlines are better prepared to handle oil price shocks than in the past because there are fewer airlines, they're making money from extra fees, and management is focused more on profit than gaining market share.
The price of jet fuel mostly tracks changes in the cost of crude oil, which has plunged about 15 percent in the past three weeks on concern that 2012 global economic growth and energy demand would be weaker than previously expected.
However, oil prices rebounded slightly on Thursday on rising tensions with Iran. Negotiations between six world powers and Iran over its nuclear program appeared to hit a roadblock, sending benchmark oil for July delivery up $1.14 to $91.04 per barrel in afternoon electronic trading on the New York Mercantile Exchange. Wednesday's closing price of $89.90 was the lowest since Oct. 21.
In afternoon trading, US Airways shares were up $1.10, or 10 percent, to $12.10; United Continental Holdings Inc. climbed $1.24, or 5.5 percent, to $23.55; Delta Air Lines Inc. shares gained 47 cents, or 4.4 percent, to $11.21; and Alaska Air Group Inc. picked up $1.17, or 3.6 percent, to $33.40.
Among low-fare carriers, Spirit Airlines Inc. rose 69 cents, or 3.4 percent, to $20.98; Southwest Airlines Co. rose 40 cents, or 4.7 percent, to $8.76; JetBlue Airways Corp. added 8 cents, or 1.8 percent, to $4.56; and Allegiant Travel Co. gained $1 to $63.99.