Shares in easyJet, Ryanair and Aer Lingus owner IAG rose in morning trading following the collapse of rival Monarch.
Investors piled into the stocks after interpreting the airline's demise as a boon for competitors.
EasyJet was up more than 4%, Ryanair rose 3% and IAG shares increased 2%.
Neil Wilson, senior market analyst at ETX Capital, said: "The failure of Monarch is good news for rivals. It means fewer seats to fill sector-wide - more than six million in the case of Monarch.
"This should mean Ryanair and easyJet can comfortably improve load factors, even if the reputation of the former has suffered of late.
"This should be positive for margins despite pricing pressures."
Monarch's collapse, which has sparked the UK's biggest peacetime repatriation operation, caps a torrid period for the budget airline sector and marks the third failure this year in Europe, following Alitalia and Air Berlin.
Mr Wilson described the failures as a "symptom of over-capacity and overly-aggressive pricing".
"Many more mid-sized carriers are limping on thanks to cheap oil but further consolidation may be necessary.
"Ryanair is among the last standing - its reputation can take a few more knocks," he added.
Ryanair has been dogged by a wave of flight cancellations in recent weeks after the company miscalculated pilot leave.