After months of damaging retreat, many airline share prices have gained in recent days as the crude oil price fell back from its latest peak on Monday.

Speculation about industry consolidation – particularly in the US, where Delta Air Lines and Northwest Airlines are seeking to merge – has also helped some airline stocks to bounce back. But the respite could prove temporary.

“We’re having a fool’s rally,” a leading aviation analyst said on Friday. “This is a rally associated with the oil price coming down from $117 to $110 a barrel. But with $110-oil airlines are still in very grave difficulties.”

The oil price rose again on Friday as Turkish fighter aircraft attacked Kurdish positions in northern Iraq.

British Airways’ share price rallied this week. A rise of about 12 per cent was supported by its disclosure that it was exploring “opportunities for co-operation” with American Airlines and Continental Airlines . But the recovery was small measured against the fall during the past 12 months of more than 50 per cent.

More important influences on the outlook for aviation are the oil price and growing economic weakness round the world. Jet fuel has overtaken labour as the biggest single cost and accounts for 30 to 40 per cent of carriers’ total expenses. And there are fears of outright recession in the US.

Chris Avery, European aviation analyst at JPMorgan, said that, for BA, the “enormity” of the industry fuel price rise and recession meant that any eventual gains from an enhanced transatlantic alliance were “pretty small beer”.

In recent months the mood has darkened and many US carriers and some in Europe reported losses in the first quarter. Profit warnings have become commonplace, and there have been several airline bankruptcies.

The latest data for global airline traffic, released on Friday by the International Air Transport Association, added to the gloom by showing an underlying rise in passenger traffic of 4 per cent year on year.

Iata said the slowdown in demand growth continued a sharp downward trend that began in December 2007 when the US credit crunch started to be felt in the airline industry.

“Traffic only tells a part of the story,” said Giovanni Bisignani, Iata director-general. “Astronomical oil prices are hitting hard. And the buffer of an expanding economy has disappeared. The fortunes of the industry have taken a major turn for the worse.”

For many US network carriers, such as American, United, Northwest and Delta, fuel cost problems are compounded by the large number of older, less fuel efficient aircraft they are still operating.

Airlines have tried to claw back some of the higher fuel costs through fuel surcharges and fare increases, although they are starting to meet consumer resistance to higher prices.

Carriers are taking out hedging contracts for part of their future fuel requirements. Air France-KLM, Lufthansa and BA are among the most successful practitioners of this kind of insurance.

BA said in March it was 60 per cent hedged for the first half of the current financial year, at about $80 a barrel, and 45 per cent hedged for the second half at $83 a barrel.

“I am sometimes asked, ‘How high does the fuel price have to go before you lose your operating profit?’ ” Keith Williams, BA chief financial officer, said recently.

“Assuming no change in the level of fuel surcharging, I believe at the moment that would be just under $120 a barrel. Long-run fuel prices at those sorts of levels would of course result in pretty fundamental changes to our industry.”

Margins are shrinking at frightening speed. On Friday the June forward contract for Brent crude oil resumed its upward movement, trading $3.70 higher at $114.20 a barrel.