Airline shares were having their third straight strong session following a sector upgrade and a huge jump in traffic at JetBlue ( JBLU).

In a research note, Bear Stearns argued it's unlikely the vortex of difficulties that has hamstrung the industry over the last 12 months will be repeated in the next 12. It upgraded the sector to market weight from underweight.

"It is unlikely that the airlines will face the simultaneous occurrence of war, SARS, and high oil prices over the next 12 months as they have recently endured," Bear wrote. "Moreover, if the economy picks up to the extent that business travel improves, the industry could finally see revenue for available seat mile (unit revenue) relief."

The Amex Airline Index was recently up more than 3% on the upgrade at 45.74, leaving it up better than 6 points, or about 18%, since Thursday's close. American Airlines parent AMR ( AMR) was up 75 cents, or 12%, to $6.99, while Continental ( CAL) was up 25 cents, or 2%, to $11.65, Northwest ( NWAC) was up 38 cents, or 4%, to $10.50, and Delta ( DAL) rose 81 cents, or 5.5%, to $15.51.

Just as Merrill Lynch opined in an upgrade Friday, Bear Stearns said the threat of insolvency among airlines has recently receded.

"The historic labor deals and ongoing movement in labor costs, since our initiation, lowers the risk of bankruptcy and will serve as a catalyst for progress on other elements of operating expenses," it said.

Still, the carriers are not out of the woods.

"Pricing is abysmal, and we expect the long-term yield trend to remain negative," Bear wrote. "While change is under way, whether or not this downturn creates a cost structure that permits the carriers to cover their cost of capital through a full cycle remains to be seen."

Meanwhile, JetBlue was up about 1% to $33.07 after saying it flew 898.1 million revenue passenger miles in April, up 80.8% from 496.9 million a year earlier. Its load factor, which measures the percentage of seats filled, jumped to 84.1% from 83.9%.

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