U.S airlines plunge on recession worries

NEW YORK (Reuters) - Shares in U.S. airlines plunged on Wednesday, with Northwest Airlines and Alaska Air Group dropping more than 10 percent, after JP Morgan cut its ratings on those carriers and several others due to recession concerns.

"Even a best-ever recessionary demand scenario results in a $4 billion industry loss," JP Morgan analyst Jamie Baker said in a note.

"And if demand trends mirror prior recessions, a $9 billion loss can't be ruled out," he added. "In that scenario, cash becomes scarce for many."

The Amex airline index .XAL fell 5.8 percent to its lowest levels in more than five years.

In addition to a potential U.S. recession, airlines face soaring oil prices, which have recently been setting record highs and leading to increased jet fuel costs.

While a downturn in the world's largest economy typically depresses oil prices, that is not a given this time with countries like China and India booming.

"More likely, in our view, is that oil sits tight but revenue trends reverse," said Baker, who expects to see signs of softer demand starting in the second quarter.

The airline industry is expected to spend $25 billion more on jet fuel this year than it did in 2002, swamping the $7 billion in labor savings squeezed out during the past few years, JP Morgan said.

The broker lowered its ratings and slashed 2008 earnings estimates on airlines, including American Airlines parent AMR Corp, Delta Air Lines, Continental Airlines and US Airways.

In morning trade, Alaska Air dropped 12.8 percent to $19.62. Northwest fell 10.6 percent to $10.94, and United parent UAL slumped 9.2 percent to $24.35.

The following table lists JP Morgan's changes in rating and current fiscal year earnings-per-share estimates on U.S. airlines: Company --------Rating--------- EPS estimate

Current Prior Current Prior Alaska Air Group (ALK.N) Underweight Overweight -$0.85 $2.46 AMR Corp (AMR.N) Underweight Overweight -$7.48 -$1.35 Continental Airlines (CAL.N) Neutral Overweight -$2.50 $1.21 Delta Air Lines (DAL.N) Neutral Overweight -$0.71 $0.47 Northwest Airlines NWA.N Underweight Overweight -$1.62 $1.34 US Airways Group (LCC.N) Underweight Overweight -$10.05 -$0.87 UAL Corp (UAUA.O) Underweight Overweight -$4.82 -$0.21

(Reporting by Chris Reiter and Amulya Nagaraj in Bangalore; Editing by Himani Sarkar and John Wallace)