The stocks rallied Monday, as oil prices fell and Southwest Airlines Co. reported a big jump in January traffic.
Southwest said traffic last month rose 13 percent from a year ago. A key revenue measurement increased between 8 percent and 9 percent, reflecting higher prices. The report offered more evidence that travel demand is rebounding from the worst of the recession.
The news helped Southwest shares rise 2.6 percent, and other airlines gained too. The Arca Airline index was up 1.2 percent on Monday.
That followed a week in which the index lost 2.6 percent, capping a 10 percent slide since Jan. 14. Over the same period, the Standard & Poor's 500 stock index rose 1.4 percent.
Michael Derchin, an airline analyst at CRT Capital Group, said aviation lagged mostly because of worries about rising prices for fuel. Along with labor, it's one of an airline's biggest expenses.
Since mid-January, oil prices have stubbornly stayed near or even slightly above the $90-a-barrel mark, levels not seen since 2008. The price of jet fuel on the spot market has soared 44 percent in the past year, to $2.80 a gallon, with most of the increase coming in the past six months.
The airlines were also hit by the third major winter storm this season, causing more than 22,000 flight cancellations last week, according to flight tracking service FlightAware.com.
The airlines haven't disclosed estimates of losses from all the cancelations, but Helane Becker, an analyst with Dahlman Rose & Co., said Monday she estimates the industrywide loss from last week's storm at about $100 million.
Although airline stocks have fallen since mid-January, they have been rising steadily for the past two years, during which the Arca index more than doubled. All the major U.S. airlines but one made money last year, with more passengers paying higher average fares.
Among the eight largest U.S. airline companies, analysts expect only Southwest and Alaska to make money in this year's first quarter - typically the weakest travel period of the year - but they predict all the airlines will turn it around and earn $5 billion in 2011.
The major airlines have boosted airfares five times since December, mostly a few bucks at a time. They have been able to push prices higher because they've put a tight lid on the supply of available seats. As airline demand has recovered from lows in 2009, empty seats have been harder to find, making them more valuable and pricier.
"The airlines know they need higher fares to partially offset the oil prices, and the only way to have higher fares is to have as tight a grip on capacity as you can," said Derchin, the CRT analyst.
The airlines also have struck gold over the past three years with a variety of extra fees. They raised more than $4.3 billion from fees on checked bags and ticket changes in just the first nine months of last year.
Delta went back to the fee strategy Monday, saying it will offer roomier economy seats on international flights this summer for an additional $80 to $160 each way. Several other airlines offer premium economy seats for a fee, including United Airlines and Virgin Atlantic.
Southwest shares gained 30 cents, or 2.6 percent, to close at $12.03; United Continental Holdings Inc. rose 77 cents, or 3 percent, to close at $26.42; American Airlines parent AMR Corp. climbed 32 cents, or 4.6 percent, to $7.33; US Airways Group Inc. rose 48 cents, or 5.2 percent, to close at $9.72; and Delta Air Lines Inc. gained 15 cents to close at $11.55.