It happens all the time on Wall Street. Today’s deadbeat becomes tomorrow’s hero.

An analyst at Standard & Poor’s, Jim Corridore, is betting the struggling airline industry – the sector every investor loves to hate – could fit this scenario.

He’s by no means alone. To some observers, the resilience of some airline stocks, among them AMR, the parent of American Airlines, and Continental Airlines – both of which are trading close to their 52-week highs – is a sign airline shares could be ready to gain altitude again after a tailspin the past few years because of high energy prices and low fares.

Convinced this is the case, though he warns risks still abound, Mr. Corridore recently upgraded his opinion of the airline industry on the theory that the worst is probably over. The time to buy airline stocks, he tells me, is when things are bad, but they’re starting to improve (like now). Once an earnings recovery is in place, he notes, it’s way too late.

His sunnier airline outlook factors in his expectations of a sizable industry loss this year, largely driven by the airlines in bankruptcy, namely Delta, United, and Northwest. But the loss, he believes, will be sharply lower than last year, when the 10 largest domestic airlines together lost an estimated $5.5 billion. In 2004, these 10 airlines lost about $10 billion.

Despite his expectation of another year of red ink, Mr. Corridore sees a number of large carriers returning to profitability in 2006. The chief catalysts, he says, are the recent moderation in oil prices, a smaller spread between oil prices and jet fuel prices, rising airfares, strong passenger demand, and another year of brisk business in international travel.

Two big carriers the analyst expects to return to profitability this year – which also happen to be his two favorite airline stocks – are AMR and Continental. He expects AMR to report a 2005 loss of $3.89 a share, but earnings of about $1 a share this year. Continental is seen posting a 2005 deficit of $2.08 a share, followed by a 2006 profit of $0.85 a share.

Three other names he favors are Alaska Air, SkyWest, and Southwestern Airlines. They all are expected to report a profit for last year, and Mr. Corridore sees stronger performances this year from all three.

What about the airlines in bankruptcy? The analyst sees better days ahead on this score, noting that Delta and Northwest are attempting to restructure, while United is expected to come out of bankruptcy early this year. Among the other major players, he feels both AMR and Continental are relatively safe from bankruptcy.

Likewise, he thinks the September 27 consolidation of bankrupt US Airways with America West Holdings may kick off a new wave of industry mergers. In this context, he rates both Delta and Northwest as attractive acquisition candidates.

While industry overcapacity has constrained the ability of airlines to raise fares, there are signs, Mr. Corridore points out, that carriers might be regaining some pricing power. For example, Delta, which had been capping one-way transcontinental fares at $499, raised the limit to $599 in July. Since April, major airlines have pushed through about 10 fare hikes, most of which have stuck. It’s the first time price increases have been successful since September 11, 2001.

While he believes things are looking better for the industry, Mr. Corridore stresses that investors have to be selective in their stock picks because of the risk factors. These include lots of debt, unfunded pension plans, the unpredictability of oil prices, and the ever-present possibility that one or more carriers could become overly aggressive in pricing.

In other words, it’s okay to board the airline stocks again, but don’t forget to keep a parachute handy.

Likewise, my wife, Harriet, who is no analyst, recently spotted an ad from Spirit Airlines promoting a flight from New York City to the Bahamas for $9, which is less than taking a cab from the East Side of Manhattan to the West Side. How, Harriet asks, can airlines make money at such ridiculously low fares? That’s common sense to me.

Meanwhile, you have to wonder what would happen to airline stocks if there was another terrorist incident aboard an airline. Clearly, airline stocks would crash.