Continental Airlines

(CAL) - Get Report

raised round-trip fares by up to $40 Friday as the carrier struggles to cope with higher fuel costs.

Continental, considered to be among the airlines most vulnerable to higher fuel prices, has already raised fares twice in the past six months in order to try and offset damage caused by the recent spike in oil prices.

"Most people recognize that fuel has gone up year over year," a Continental spokeswoman, Sarah Anthony, said. "We're paying a lot higher prices for fuel."

But analysts said they were uncertain whether Continental's latest increase, the steepest in recent years, would stick in its current form. James Higgins, an analyst at

Donaldson Lufkin & Jenrette

, said

Northwest Airlines

(NWAC)

might try to sabotage the higher fares by refusing to impose a similar increase.

"Continental tried this exactly two weeks ago and it did not go through because Northwest didn't go along with it," Higgins said. "Continental was a leader in trying to undermine Northwest's 'biz fare' class of fares."

Airlines, which face stiff fare competition, tend to revoke fare increases if their competitors refuse to follow suit. Northwest was recently forced to cancel a new business-fare class after other airlines, namely Continental, failed to implement a similar fare class.

Candace Browning, an analyst at

Merrill Lynch

, said that if the other airlines did not implement a similar fare increase within the next couple of days, Continental might be forced to rescind the increase by as early as Sunday night.

After a 9% drop on Thursday, shares of Continental, the nation's fifth-largest airline, rose 2 9/16, or 7.8%, to close at 35 3/16.

Continental raised round-trip fares by $20 on flights of up to 500 miles; $30 on flights of up to 1,000 miles; and $40 on flights of more than 1,000 miles on domestic flights as well as flights to Alaska, Canada and certain markets in Latin America.

Higgins, who rates Northwest a hold and Continental a buy, said, however, that Continental would ultimately have to raise fares in order to offset the damage caused by higher fuel prices, which have tripled over the past year. DLJ has done some underwriting for Continental over the last few years but no underwriting for Northwest.

Continental's chief executive, Gordon Bethune, recently warned that rising fuel prices could wipe out some weaker airlines unless the industry raised fares,

The Financial Times

reported. He called on the U.S. to create a national energy policy in light of the recent oil-price increases.

Analysts say Continental has hedged its fuel costs against crude oil at $31 a barrel. In contrast, the best-hedged airline,

Delta

(DAL) - Get Report

, is 70% hedged at $18 a barrel. Crude oil closed at $31.76 a barrel on Friday.

Hedges protect airlines against a jump in fuel prices by allowing the companies to buy fuel at preset prices; they can also hurt airlines should prices drop.