Airline stocks split directions Tuesday as two carriers posted better-than-expected first-quarter results, and a JPMorgan analyst downgraded three airlines and upgraded another.

AirTran Holdings ( AAI – news – people ) Inc., parent of discount carrier AirTran Airways, led the group’s gainers after it posted a first-quarter profit of $28.7 million despite a 9 percent drop in revenue. The results topped Wall Street expectations.

Shares shot up $1.37, or 24.6 percent, to $6.95 in afternoon trading.

Also reporting earnings was Continental Airlines Inc. ( CAL – news – people ), which lost $136 million, or $1.10 per share in the first quarter as traffic fell and business travelers saved money by moving from first class to the coach cabin. However, the loss was narrower than Wall Street expected.

In a note to clients, JPMorgan analyst Jaime Baker cut Continental and United Airlines parent UAL Corp. ( UAUA – news – people ) to “Neutral” from “Overweight.” He also reduced his rating on U.S. Airways Group Inc. ( LCC – news – people ) to “Underweight” from “Overweight.”

Baker noted that while the stocks have recovered somewhat in the last month, he’s concerned that demand won’t be strong enough for the threesome to meet Wall Street’s expectations over the next several quarters.

Revenue per available seat mile – a key performance measure among airlines – is expected to suffer next month, which Baker believes could spur forecast cuts and leave the three major carriers “vulnerable.”

Baker set his 2009 forecasts significantly below the consensus estimates – $7 below for UAL and $4 below for Continental and U.S. Airways.

“We’re not certain all investors are prepared for potential losses of this magnitude,” he said.

In positive news, Baker raised his rating on Southwest Airlines Co. ( LUV – news – people ) to “Neutral” from “Underweight,” citing a lag in the stock price since this summer.

In afternoon trading, Continental lost $1.10, or 7.3 percent, to $13.90. UAL fell 35 cents, or 5.3 percent, to $6.28. U.S. Airways jumped 30 cents, or 7.2 percent, to $4.48.

Southwest gained 2 cents to $7.55.

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