Airline stocks appear ready for another look

— -- For the first time in recent memory, airline stocks aren't the ugliest shares in a down market.

Analysts are pumping airline stocks as cheap buys that could produce big gains in the next six to 18 months for investors.

So far, however, investors can't see past the industry's dismal record in past downturns or beyond concerns that a weak economy is undermining demand for travel and affecting revenue.

Even after two good days on Wall Street, airline shares are priced much closer to their 52-week lows than to their highs.

Most carriers hit their 52-week highs in February 2008, just before investors figured out that oil prices were becoming a big problem. Now, airlines' oil price woes have subsided. After peaking above $147 a barrel in mid-July, oil closed Tuesday at $39.96 a barrel.

Vaughn Cordle at Airline Forecasts says that drop will save the 10 largest U.S. airlines $20 billion this year, assuming oil averages $60 a barrel.

"The industry essentially breaks even with $70 oil, but earns $7.5 billon with $50 oil" this year, Cordle says.

Not all analysts are enthused. But even the more cautious predict profits unless the economy experiences an unprecedented, cataclysmic collapse.

Michael Linenberg at Bank of America's Merrill Lynch recently suggested that airline profits this year might come in closer to $2 billion than to $4 billion because of weakening demand.

That weakness has led to increased worries about fare discounting. But most analysts believe that airlines' improved balance sheets, coupled with capacity cuts, will prevent a ruinous fare war.