The combination of capacity cuts and a decline in fuel prices will help US airlines weather a slack in demand, said a UBS analyst, who raised his price targets on three airlines, including US Airways.

However, airlines should boost liquidity through capital increases as debt levels remain too high, analyst Kevin Crissey said.

"The balance sheets of most US airlines look as if they've just come out of a recession, rather than going into one," the analyst said. "There is nothing to say fuel can't reverse course quickly and leave the airlines short on cash again."

Oil dropped more than USD$4 a barrel on Friday as gloom about a global economic downturn sapping fuel demand took the steam out of an OPEC agreement to cut output.

Last week, US Airways, AirTran, JetBlue Airways and Alaska Air reported quarterly losses, linking their results to a historic spike in fuel prices in the third quarter.

Crissey, who expects travel demand to likely be very weak soon, raised his price targets on US Airways, AirTran and Alaska.

Separately, Credit Suisse raised its price target on US Airways to USD$13 from USD$10.

"Fourth-quarter 2008 revenue should be ok for the industry, but our thesis is that 2009 likely proves more challenging," analyst D McKenzie wrote in a note to clients.