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By Carolyn Austin

The New York Times reported that 2010 is expected to be a year of profitability for airlines after two years of steep losses, according to a Geneva-based trade group. The only exception to the forecast are European airlines, handicapped by a weaker recovery and volcanic eruptions in Iceland, which are expected to turn a profit in 2011.

The report cited increasing demand, higher fares, and higher freight traffic as contributing to the revised outlook, although warning that profit margins would remain “razor thin.”

We expect profitability in the global airline sector to improve as we gain distance from the 2009 trough of the recession,” said Jonathan Root, an airline analyst at Moody’s. “While a contraction of consumer confidence and still-high unemployment remain risks that could temper improvements in yields, the airlines’ careful capacity management, if maintained, should be effective in mitigating these risks.

But airlines can be risky – as the union strike at Spirit airlines illustrates. And Germany is considering a controversial proposal to impose an air travel tax.

Recent upgrades, however, to JetBlue, Southwest, and American signal it may be time for a second look.

All three stocks gained traction in early morning trading.

JetBlue Airways (NASDAQ: JBLU)

Rated a “Buy” by Deutsche Bank and Bank of America
Price target: $8 (Deutsche Bank – NYSE: DB); $11 (Bank of America – NYSE: BAC)

Comments: The stock gapped up above its 50–day moving average, gaining over 6 percent in the morning trade. JBLU is in a strong uptrend and on its way to an $8 price target or higher. Another plus in favor of longs, the stock is oversold. This looks like a solid play.

Southwest Airlines (NYSE: LUV) rated a “Buy”

Discount airline Southwest Airlines was rated a “Buy” by Deutsche Bank with a price target of $15.

Comments: LUV peaked in mid April at around $14 a share and is currently trading about $2 less. The stock is sitting pretty at about $12.25 and got a slight boost of about 1.5 percent today. But the chart isn’t as pretty as it could be – best to wait until the price breaks its 50-week moving average at around $12.55 for a nice gain.

AMR Corp (NYSE: AMR)

AMR, parent company of American Airlines, rated a “Buy” by Deutsche Bank with a price target of $14.

Comments: American has been taking some heat lately concerning its plans to spin off its regional carrier and making some executive changes for such a move. The stock bottomed out in May and is trending upwards at a solid pace. The stock looks poised to trend higher as long as trading volume holds up.

Disclosure: No positions

Source: Good News for Airlines JetBlue, Southwest, American