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) -- With rising fuel prices taking a toll on airline stocks, analysts expect the industry to respond with more capacity cuts and fare increases.

As fuel prices surged last week, airline shares fell 11%, according to the

Wolfe Trahan

index of the nine leading airlines. During the week, the

Standard & Poor's 500

index was flat. The biggest losers were

US Airways


, which lost 20% of its value but is still up 36% for the year as of noon Tuesday, and


(JBLU) - Get JetBlue Airways Corporation Report

, which lost 15% of its value and is down 3% for the year.

In response to rising jet fuel prices, Delta says it will cut its Miami-London Heathrow and Atlanta-London Gatwick routes.

"Historically, inverse relationships between oil and airline stocks are strongest when crude oil is moving rapidly in one direction, as was the case

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last week," wrote Wolfe Trahan analyst Hunter Keay in a report.

The well-established template for an industry response includes reducing capacity and raising fares. "If jet fuel remains at $3.30 per gallon for the next several months, the airlines will reduce capacity," wrote

Dahlman Rose

analyst Helane Becker in a report. "Schedules are mostly set through

the first half of 2012, so if the airlines reduce capacity, it would be for 2H12 capacity."

Deutsche Bank

analyst Michael Linenberg noted that already airlines are making capacity cuts that few could have foreseen.

"Who would have ever thought that

American Airlines


would withdraw from JFK-Aruba, a market they have been serving for the last 40 or so years?" Linenberg wrote. "That plus St. Maarten, Turks and Caicos, San Jose, Costa Rica and Fort Lauderdale are some of the routes slated to be cut from NY's Kennedy Airport. Some of these cuts may be a function of AMR's bankruptcy restructuring and some may be due to anticipated losses from rising energy prices."

Other surprises, Linenberg said, including


(DAL) - Get Delta Air Lines, Inc. Report

cuts on Miami-London Heathrow and Atlanta-London Gatwick, and the

Air France

withdrawal from Paris-Newark. "We are currently projecting just under 1% domestic capacity growth for 2012," Linenberg said. "Rising energy prices clearly puts that at risk."

As for fare increases,

J.P. Morgan

(JPM) - Get JPMorgan Chase & Co. Report

analyst Jamie Baker noted the failure of last week's effort, initiated by


(UAL) - Get United Airlines Holdings, Inc. Report

to raise fares. The majors followed, but discounters did not match over the weekend. "Nonetheless, should fuel prices remain at current levels or trend higher, we are confident in a collective industry fare response in the next several weeks, possibly accompanied by incremental capacity cuts in ... flying levels" for the second half of the year, Baker wrote.

Baker said Delta, United and US Airways remain his preferred airline industry stocks.

-- Written by Ted Reed in Charlotte, N.C.

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Ted Reed

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Ted Reed