Delta Air Lines (DAL), United Airlines (UAL), and other airline stocks are set for a "happy ending" in Q2 despite facing significant disruptions, with most of them expected to hit or even exceed the high end of their quarterly guidance, Morgan Stanley said in a note Monday.

Airlines were set to face "one of the sternest" tests in years in Q2 as they grappled with record jet fuel prices, but trends have changed, with stronger revenue per available seat mile momentum, jet fuel prices falling below $3 per gallon, and solid cost performance, according to the note.

The investment firm said, however, that the industry faces another big test in six months. If there is a mean reversion on pricing and capacity growth, investors will be disappointed, it said.

The firm retained an overweight rating on Delta, United and Southwest Airlines (LUV), and increased their price targets to $115, $185 and $65, respectively, from $105, $182 and $60. Morgan Stanley also maintained an equal-weight rating on Allegiant Travel (ALGT), and increased its price target to $115 from $100.

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