* Positive demand projection, Wall Street outlook a plus
* Shares of United, Delta, US Airways, Southwest all up
By John Crawley
WASHINGTON, May 16 Shares of American Airlines parent AMR Corp AMR.N and US Airways Group LCC.N led a sector rally on Monday, helped by lower oil prices, improving travel demand and a positive analyst outlook.
J.P. Morgan analysts Jamie Baker and Mark Streeter broadly raised estimates and targets due to the improved operating outlook.
"We suggest investors increase their exposure to airline equities ahead of an expected upward surge in consensus estimates," the two wrote in a note to clients as U.S. oil futures CLc1 slipped to $97.08 a barrel .
Jet fuel has declined 30 cents per gallon since the last week of April, improving the prospects for airlines trying to regain their footing after a difficult first quarter due to fuel price gains.
Shares of AMR closed 4.9 percent higher at $6.69 and US Airways Group LCC.N gained 5.6 percent, both on the New York Stock Exchange. United Airlines parent United Continental Holdings (UAL.N) gained 2.2 percent, while shares of Delta Air Lines (DAL.N) rose 3.3 percent and Southwest Airlines Co (LUV.N) rose 0.6 percent.
In upgrading AMR to hold from sell, Standard & Poor's analyst Jim Corridore now expects smaller full-year losses from American for this year and 2012.
Corridore revised his 2011 estimate for American to a loss of $1.42 a share from $2 a share previously. For 2012, he expects a loss of 74 cents a share, compared with a prior view of a $1.06.
Avondale Partners analyst Bob McAdoo said receding oil prices would help American Airlines on Wall Street, but he stressed the company still faces management, operating and labor cost problems.
"Moving funds from AMR to any other legacy airline is our recommendation," McAdoo wrote in a note to clients.
While oil prices keep sliding, air travel demand continues to rebound, although it is still off pre-recession highs of 2007 and 2008.
Separately, the Air Transport Association estimates U.S. airlines will fly 206 million passengers from June through August, a 1.5 percent increase over last year.
The industry's top trade group also said travelers are booking international flights in record numbers, reflecting an improving economy.
(Additional reporting by Karen Jacobs in Atlanta; Editing by Tim Dobbyn)
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