Southwest Airlines Co. (NYSE: LUV), the Dallas-based low-cost air carrier, is scheduled to discuss its third quarter 2009 financial results in a conference call Thursday at 11:30 AM ET hosted by CEO Gary Kelly and CFO Laura Wright. You can catch the live webcast on the company's website.

During the three months that ended in September, Southwest began service to Boston Logan, prepared a bid to acquire Frontier Airlines, and declared its 132nd consecutive quarterly dividend. But analysts surveyed by Thomson Reuters expect the company to report that earnings fell from 9 cents per share a year ago to a penny per share. Sales for the quarter are expected to be 9.7% lower to $2.6 billion.

Continental Airlines (NYSE: CAL) just got the relief it needs to compete. Despite resistance from the Department of Justice (which can only recommend), the Department of Transportation has granted the airline immunity from antitrust laws. This clears the way for Continental to work with United Airlines (NASDAQ: UAUA) -- and other carriers -- on international routes. Now, the airline can join Star Alliance, which already has antitrust immunity.

At the same time, DOT approved a joint venture among Continental, United, Lufthansa (OTC: DLAKY) and Air Canada. This new relationship would involve trans-Atlantic routes.

Analyst upgrades:

• Citigroup upgraded Adtran (NASDAQ: ADTN) to Buy from Hold on expectations the company will benefit from the broadband Stimulus funds.
• Morgan Stanley upgraded Continental Airlines (NYSE: CAL) to Overweight from Equal Weight based on relative valuation and views the company as a "survivor." Additionally, the analyst lowered 2009 industry estimates but believes it is the last cut for the year and is incrementally more positive on the sector.
• Morgan Stanley also upgraded EXFO Electro-Optical (NASDAQ: EXFO) to Overweight from Market Weight based on valuation.
• Tata Motors (NYSE: TTM) was upgraded to Buy from Hold at Deutsche Bank.
• Ascent Solar (NASDAQ: ASTI) was upgraded to Neutral from Underweight at JP Morgan.
• Mechel Steel (NYSE: MTL) was upgraded to Neutral from Underperform at Credit Suisse.

Continental Airlines (NYSE: CAL) is seeking immunity from antitrust laws to work more closely with United Airlines (NASDAQ: UAUA) and others on international routes. And, since airlines operate in a state of seemingly perpetual turmoil, what's the harm? According to the Justice Department: plenty.

The airline sought broad immunity as part of an effort to join Star Alliance, which includes US Airways, Lufthansa (OTC: DLAKY), and Air Canada -- along with United. Continental believes that it needs to join Star Alliance in order to remain competitive, especially with airlines that have this type of immunity already.

It was a rough first quarter for Continental Airlines (NYSE: CAL), as the air carrier announced that it lost $136 million thanks to falling traffic. In addition, CAL saw a large amount of business travelers switching out of first class to save a few bucks in coach. During the quarter, CAL lost $1.10 per share. Excluding charges, CAL would have lost $1.07 per share. While the loss was larger than last year's first-quarter loss of 82 cents per share, CAL did manage to beat the Street's expected loss of $1.19 per share.

Quarterly revenue dropped to $3 billion from $3.57 billion last year, slightly higher than the expected $2.98 billion. CAL saw sales drop across all regions, with the U.S. and trans-Atlantic routes falling the most. CAL saw traffic drop 11.2% compared to a year ago, with empty planes outweighing the flights CAL cut. The company noted that it was helped by dropping fuel prices, as it spent nearly 42% less on fuel compared to a year ago.

	Media Biz: What will happen when print media dies?
	Why the banks won't price their toxic assets
	Dubai: What goes up must come down
	Continental plane crash ends remarkable aviation safety streak
	Stocks picks and pans: MCD, CPB, CLH, POT, KO, VZ, TIF, HNZ ...

Continental Airlines (NYSE: CAL - option chain) shares are soaring higher today after the company announced that it expects more than $100 million a year in fees and savings by charging travelers to check luggage. Obviously, checked luggage fees irritate travelers, but it is good for the company, then it should be good for the stock, and if you make a little money on the stock then you can afford to pay the extra fees and maybe even a mini-bottle of whiskey too. CAL is also getting a lift today from the drastic slide in oil prices, which have almost dropped below $100. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CAL.

CAL opened this morning at $15.52. So far today the stock has hit a low of $15.13 and a high of $17.90. As of 12:10, cAL is trading at $17.62, up $1.55 (9.6%). The chart for CAL looks neutral and S&P gives CAL a 3 STARS (out of 5) hold ranking.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $10 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just five weeks as long as CAL is above $10 at October expiration. Continental would have to fall by more than 43% before we would start to lose money. Learn more about this type of trade here.

CAL hasn't been below $10 since mid-July and has shown support around $15 recently.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in CAL.

As the second quarter earnings crunch begins in earnest this week, the bear market has investors jittery and prognosticators spinning out dire warnings. In the wake of mixed results from Alcoa (NYSE: AA) and General Electric (NYSE: GE) kicking things off last week, here's a look at what Wall Street is expecting from many of the companies scheduled to report this coming week.

Analysts surveyed by Thomson Financial are expecting the following companies to report a rise in earnings when compared to the same period of the previous year.

• Nucor Corp. (NYSE: NUE): $1.80 EPS (36.6%) on sales of $6.4 billion (+53.0%)
• Google Inc. (NASDAQ: GOOG): $4.74 EPS (24.9%) on sales of $3.9 billion (+41.6%)
• Nokia Corp. (NYSE: NOK): 56 cents EPS (23.2%) on sales of $19.9 billion (+17.8%)
• CSX Corp. (NYSE: CSX): 90 cents EPS (21.1%) on sales of $2.9 billion (+12.8%)
• Altera Corp. (NASDAQ: ALTR): 27 cents EPS (18.5%) on sales of $346.7 million (+8.4%)
• IBM (NYSE: IBM): $1.82 EPS (+17.6%) on sales of $25.9 billion (+9.0%)
• eBay Inc. (NASDAQ: EBAY): 41 cents EPS (17.1%) on sales of $2.2 billion (+18.0%)
• W.W. Grainger Inc. (NYSE: GWW): $1.46 EPS (17.1%) on sales of $1.7 billion (+8.0%)
• Microsoft Corp. (NASDAQ: MSFT): 47 cents EPS (17.0%) on sales of $15.7 billion (+17.0%)
• Honeywell International Inc. (NYSE: HON): 94 cents EPS (17.0%) on sales of $9.2 billion (+7.9%)

Continental Airlines, Inc. (NYSE: CAL) is making cuts due to rising fuel costs:

Continental (NYSE: CAL) announced it plans to reduce its work force by 3,000 jobs and its Q4 domestic departures would be 16% lower than a year earlier.

CAL closed at $14.50 Wednesday. WTI Crude oil is recently up 0.20% to $122.54 according to Bloomberg.

CAL July option implied volatility of 97 is above its 26-week average of 80 according to Track Data, suggesting larger risks.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MAJOR PAPERS:

• Merger talks between UAL Corporation's (NASDAQ: UAUA) United Airlines and US Airways Group Inc (NYSE: LCC) have been put off for now, the Wall Street Journal reported. United is reportedly close to an alliance with Continental Airlines Inc (NYSE: CAL).
• Harris Corporation (NYSE: HRS) is for sale and the company has begun to hear from interested parties, the Wall Street Journal also reported. Harris is looking for $75 to $80 per share. Speculation about the bidders includes General Dynamics Corporation (NYSE: GD) and Northrop Grumman Corporation (NYSE: NOC).

OTHER PAPERS:

• The Charleston Gazette reported that Chesapeake Energy Corporation (NYSE: CHK) has decided not to build its Eastern Division headquarters in Charleston, West Virginia in the wake of a West Virginia Supreme Court ruling on May 22.

WEB SITES:

• AppleInsider reported that Apple Inc (NASDAQ: AAPL) is expected to announce a back-to-school deal soon that will encourage students to buy new Macs by offering some of the largest incentives in the history of the company.

Higher oil prices and the surging aviation fuel costs they imply may reduce the benefits of an airliner merger, such as the potential deal between United Airlines and U.S. Airways, but they don't eliminate a merger's long-term positives, an analyst argued Tuesday.

Further, C. Leonard Bauer, independent stock analyst, told BloggingStocks Tuesday the potential United-US Airways union would benefit the sector in that it would be the second merger this year among major airlines in the United States, also known as the legacy carriers.

Shares of UAL Corp. (NYSE: UAUA), parent of United Airlines, are down 88 cents to $14.10, while US Airways (NYSE: LCC) are down 55 cents to $7.79 in Tuesday trading.

Sector right-sizing

"The deal would take another legacy carrier off the table, after the Delta-Northwest merger, and that can only help the sector from an earnings standpoint," Bauer said. "The United States airline sector leads the league in airline route redundancy and duplicate hubs. This second deal would further tighten the sector."

Look for the stalled Delta Air Lines (NYSE: DAL) / Northwest Airline (NYSE: NWA) deal talks to regain momentum and the merger to be announced in the week ahead, an analyst confidently told BloggingStocks Thursday.

Independent stock analyst C. Leonard Bauer, formerly of Prudential, said the Delta / Northwest talks may be stalled by the inability of the companies' pilots unions to reach an agreement on seniority lists, but that traditional, formidable hurdle will not stop this deal from coming to fruition due to its "strong marriage fundamentals."

Attractive fundamentals

Bauer said three fundamentals will drive the deal: absence of overlapping city pairs, economies of scale and passenger demand.

"First, there's the overall flight route fit. Delta and Northwest have only 10 or 12 cities pairs that overlap, so from a destination coverage standpoint, the deal is very attractive," Bauer said. "Second, the new company will have massive economies of scale and will be a force in the new global market. This will be a profitable airline."

Is the U.S. airline sector on the eve of another transformation? One analyst thinks it may be, if recent merger rumblings are any indication.

The Delta Air Lines (NYSE: DAL) / Northwest Airline (NYSE: NWA) merger discussions and chatter that Germany's Lufthansa is considering an investment in a potential merger between United (NASDAQ: UAUA) and Continental (NYSE: CAL) suggest to independent equities analyst C. Leonard Bauer that a new commercial aviation paradigm may be up ahead.

"When you look back at the last 30 years, you can say that the 1980s, clearly, was the decade when mergers were needed to meet the demands of the new market, basically the mass consumer market in the U.S.," Bauer told BloggingStocks Wednesday. "Those larger carriers' lowered seat prices led to a huge increase in domestic travel, which helped bring flight travel to the typical citizen."

MAJOR PAPERS:

• The Wall Street Journal reported that KKR Financial Holdings LLC (NYSE: KFN), a unit of Kohlberg Kravis Roberts, revived concerns of a credit crunch after it asked for a restructuring of billions of dollars in short-term debt.

OTHER PAPERS:

• According to sources, the Chicago Tribune reported that Deutsche Lufthansa AG (OTC: DLAKY) could look to take an equity stake in a merger between Continental Airlines Inc (NYSE: CAL) and UAL Corporation's (NASDAQ: UAUA) United Airlines.
• The Associated Press reported that the pilots' unions of Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) are unable to agree on how seniority for the companies' pilots would work under a combined carrier. The impasse puts the deal in "serious jeopardy," inside sources reported.

WEB SITES:

• Electronics retailer Sharper Image Corporation (NASDAQ: SHRP) has filed for bankruptcy, citing declining sales and profitability, Bloomberg reported.