Higher fuel costs are pressuring airlines, but strong demand and increased fares could offset some of the impact, BofA Securities said in a note Wednesday.

The firm said it sees two possible scenarios. Fuel prices stay high, forcing weaker airlines to cut back or rethink operations, or the conflict ends sooner than expected, leading to a strong earnings recovery.

"We assume the industry benefiting from the second scenario, and airlines with good margins and strong balance sheets emerging stronger from the first scenario," the firm added.

The firm said that, for fuel, it uses the jet fuel curve for the rest of the year, which implies a Q2 cost of about $4 per gallon, compared with the current Gulf Coast spot price of $4.49, while also factoring in regional differences and into-plane costs. On the revenue side, Delta Air (DAL) and United Airlines (UAL) are expected to offset about 50% of the higher fuel costs, helped by global re-routing, while other airlines are expected to offset around 40% to 45%, it added.

BofA lowered its price targets across the airline group, including Delta to $78 from $80 and United to $140 from $145. Alaska Air Group (ALK) was cut to $60 from $70, while American Airlines (AAL) was reduced to $14 from $17. Southwest (LUV) saw its target lowered to $40 from $42, JetBlue (JBLU) to $3.50 from $4, and Frontier Airlines (ULCC) to $3.50 from $4. Allegiant (ALGT) was also lowered to $90 from $105.

Price: 67.90, Change: +1.42, Percent Change: +2.14