JPMorgan upgraded Alaska Airlines (ALK) - Get Report and downgraded Southwest (LUV) - Get Report on Wednesday and said the outlook for airlines is generally dim until revenue trends begin to change, which could occur in the fourth quarter.

The ratings changes took Alaska to overweight from neutral, while Southwest went to neutral from overweight.

Alaska shares rose 1.3% in trading early Wednesday. Southwest declined 2%.

"While merger-related execution risk remains formidable, ALK shares at current levels are simply too cheap to ignore," wrote JPMorgan analyst Jamie Baker in a report issued Wednesday. Additionally, he said, Alaska's labor cost per available seat mile has been flat for three consecutive years. Alaska is awaiting regulatory approval for a merger with Virgin America.

Meanwhile, "Southwest continues to resist certain industry efforts aimed at improving revenue (i.e. bag fees and plain vanilla fare increases)," Baker wrote. "Southwest also faces larger labor hurdles than any other U.S. operator, though timing and outcome are far from certain," he said.

"While shares were uniquely punished during earnings and are by no means grossly overpriced in our view, revenue lethargy and labor uncertainty suggests LUV shares may not participate as fully as others should industry self-help initiatives take root," Baker said.

In general, as airlines reported second-quarter earnings this month, Alaska, JetBlue and American (AAL) - Get Report have been winners, while Southwest has been the principal loser. Analysts have generally favored domestically focused airlines, given the big three U.S. airlines' dependence on international travel. Last month's Brexit vote underscored skepticism about the international economy.

In his report, Baker emphasized that not all of the domestically focused airlines are managed equally.

"We continue to believe that the majority of domestic revenue weakness is self-inflicted rather than secular, suggesting solutions ultimately rest in the hands of managements," he said.

Airline industry profits and margins have never been higher, but at the same time, a lack of pricing power, reflected in the metric "revenue per available seat mile" or RASM, has led investors to sell off shares of American and United.

The declines have been so steep that they "rival some of the worst multi-year declines on record, including recessions," Baker said. American's market cap has fallen 70% since the Brexit vote -- comparable, Baker said, to its 88% decline during the financial crisis.

"Stable and profitable industries usually don't exhibit this level of volatility just due to the absence of pricing power, but airline owners are a demanding bunch," he said.

"The good news," in Baker's view, "current demands for RASM improvement seem to be resonating with managements to varying degrees (Delta at one end, Southwest at the other)."

An alternate view of the same phenomenon is that Wall Street's unit revenue police took control of the airline industry, and that unit revenue is overemphasized.

On Tuesday, Deutsche Bank analyst Mike Linenberg wrote that the industry's average consolidated PRASM in June was down 5.1%. "The result represents an improvement from the industry's performance in May, when PRASM fell 6.2%," Linenberg said. In June, domestic PRASM fell 3.9%, while international PRASM fell 8.8% in the 25th consecutive month of international PRASM decreases.

PRASM refers to passenger revenue per available seat mile, which includes fewer revenue sources than RASM. The PRASM number is compiled by Airlines for America, the industry trade group. It excludes Delta, which is not an A4A member. Delta's June PRASM fell 5%.

Baker said RASM could improve in the fourth quarter. "It isn't a stretch to imagine outsized potential equity gains beginning in Q4," he said.

Until the improvements begin, he said, "risk/reward in the space doesn't strike us as all that attractive for now given investors' singular focus on RASM and continued indifference to metrics like profit margins, ROIC and the march to {investment grade} ratings.

"We also don't believe shares will trade up in anticipation of a RASM turn, rather waiting until the definitive turn is, well, definitive," he said. "We think the most likely outcome for the remainder of the summer is that equities tread water, given the RASM turn is likely -- at its soonest -- a Q4 event, in our view."

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.