Ahead of the Bell: UBS upgrades airline sector

UBS airline analyst Kevin Crissey sees smoother air ahead for airlines, and he upgraded several carriers Monday morning.

Crissey acknowledged that air travel demand will continue to be weak, but said airline shares could gain value anyway. They've already rebounded as oil prices have fallen, but Crissey thinks they could rise further as companies top conservative Wall Street earnings estimates.

"The impact of the lower fuel prices is significant and results in much better (earnings per share) than our prior estimates," he wrote in a note to clients.

He also said October has proved to be the best month for airline shares in the past.

The upgrades to "Buy" from "Neutral" included AirTran Holdings Inc., American Airlines parent AMR Corp., Continental Airlines Inc., Delta Air Lines Inc., Northwest Airlines Corp., United Airlines parent UAL Corp., and US Airways Group Inc. He also bumped JetBlue Airways Corp. to "Neutral" from "Sell."

Southwest Airlines Co. and Alaska Air Group Inc. retained "Neutral" ratings.

Oil prices continued to fall on Monday, dipping below $97 a barrel after U.S. oil operations sustained minimal damage from Hurricane Ike. Fuel has become the biggest expense at most airlines so their share prices had fallen as oil prices rose.