Two years after coming out of bankruptcy, ATA airlines has once again been forced to file for chapter 11. The airline canceled all flights, and has advised travelers to start to look for alternative travel arrangements.

The airline operated roughly 50 flights a day, and had more than 2,200 employees working. On its website, ATA has issued a formal statement and blamed the final straw for its collapse on the loss of a key military contract. In 2006, the company had won a $335 million dollar contract from the U.S. Air Force for international airlift services.

In its statement, ATA has advised passengers to contact their credit card company, or travel agent to discuss the options to get refunded for their unused tickets.

I have had some clients ask me, what industry I think will benefit from the $600 rebate checks that are due to be sent out as part of the U.S. economic stimulus package. I think airlines will benefit, especially lower cost carriers like Southwest (NYSE: LUV) and Jet Blue (NASDAQ: JBLU).

The USA Today has an article about the kind of vacation you can have for $600. The article says: "With most Americans expecting to receive a tax rebate of up to $600 ($1,200 for married couples), there are plenty of ways to get the most vacation for your buck, say travel experts. Whether it's a cruise, a tropical paradise, or family travel, these trips can all be done for under $600 a person."

Because we aren't talking about flying around the world or across the Atlantic for that measure, trips to Las Vegas or Orlando, for example, will fit the family, and of course people need a way to get to these destinations, so that's how the airlines become interesting. Throw into the mix potentially stable or even lower fuel costs, and for investors looking for a way to play the "Rebate check" game, you may want to take a look at the airlines.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 4/2/08

For anyone who has plans to fly on American Airlines, AMR Corp (NYSE: AMR) or Delta (NYSE: DAL) today, you may want to call ahead and verify that your flights are still taking off as planned, as both airlines are canceling hundreds of scheduled flights today.

Both carriers are grounding a large number of flights as they continue to hold inspections on wiring bundles on some of their planes. For American, the company is planning to ground 132 of its flights today, while Delta is canceling 275 flights.

The Federal Aviation Administration is in the middle of a massive inspection project, in which it stated that it will be inspecting 10 safety orders (also known as airworthiness directives) at every single major airline by March 28. This comes after a scandal broke out over missed inspections at Southwest Airlines (NYSE: LUV) earlier this year.

At some point last year did you find yourself stuck in a noisy, overcrowded airport terminal for hours on end waiting for your flight to take off? If so, you were by no means alone. According to the Transportation Department, last year was the second worst year in history for delayed domestic flights.

Splitting my time between America and Europe, I find myself on a lot of airplanes during the year, and luckily I only had one sizable delay on my domestic connections. While I found it rather irritating at the time, looking back on it I feel lucky that it happened only once. That is far better than the national average, which showed that 26% of all domestic flights were delayed during the year.

Granted, national averages have only been recorded going back to 1995, but last year ranked as the second worst year on record, with 2000 coming in slightly worse with 27.4% of flights seeing delays.

What reasons are we given for the excessive flight delays?

Today's news that Southwest Airlines (NYSE: LUV) will slow its planned growth in 2008 marks the second time this year that the low-cost carrier has reined in expansion as it struggles with high fuel costs. "We are concerned about growing evidence of slowing economic growth that would inevitably affect passenger demand, coupled with a surge in energy prices," Chief Executive Gary C. Kelly said in a statement.

Clearly the airline industry is challenged by high fuel costs and the prospect for slower domestic growth that would make it harder for no-frills carriers to fill their planes. As Douglas McIntyre pointed out, the saving grace for Southwest is that it has a long-term hedge on fuel prices and is buying fuel at a crude oil cost of about $51 a barrel.

What can airlines do to get profitable during this expensive fuel, slower-growth period? Well, charging customers a bit more so they can have a soda on the plane is probably not the right answer -- all it really does is make the airlines look incredibly cheap. The price airlines charge makes a drink at Yankee Stadium look cheap. How many of us have been on a plane and everyone is snickering and making comments to the person seated next to them about how they can't believe they need to pay for a Coke (NYSE: KO).

I think that airlines, like any business, need to show consumers that they are valued. Charging for a drink has the opposite effect. For an interesting take on airline improvements, read this post by Steve Towers.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 12/04/07.

You have to hand it to Herb Kelleher, the famous CEO of Southwest Airlines (NYSE:LUV). He is retired now, and his legacy was to make the airline the best low-cost provider in the US. But he also did something else that was just as important. He bought hedges against higher oil prices.

According to The New York Times "Southwest owns long-term contracts to buy most of its fuel through 2009 for what it would cost if oil were $51 a barrel. The value of those hedges soared as oil raced above $90 a barrel, and they are now worth more than $2 billion."

While other airlines struggle with the damage that $90 oil will do to their bottom lines, Southwest will have a huge advantage in terms of its cost base for at least two years. That should increase the value of the company compared to almost every other US airline.

Kelleher will now be remembered as more than just a clever cost-cutting and marketing executive.

Douglas A. McIntyre is an editor at 247wallst.com

If you're a woman of a certain age (that age at which you decide you never wish to pose for Playboy), you may be at the altar of All That Is Good and True praying that Kyla Ebbert's 15 minutes of fame would be up already!

If you're anyone else, you're probably clicking over to Playboy.com right now to see her sexy lingerie-clad shots (there's also a video of Kyla wearing nothing but a barely-long-enough cowl-neck shirt walking down a hotel hallway). You are probably thinking one of two things: (1) this is the first time that terrible fashion sense actually paid; or (2) Southwest Airlines (NYSE: LUV) is very, very smart.

This is the first time I can remember that some awful PR for an airline ended up paying off for both the airline and the wronged passenger, prolonging not only Kyla Ebbert's 15 minutes but also Southwest's own.

When Ebbert first was escorted off a Southwest plane for her skimpy attire (and, after begging and adjusting her tank top and skirt, allowed back on), she said she was humiliated. It was a few months later before she decided to tell someone about it; probably urged by her boyfriend, hoping to go from ordinary schlep to Boyfriend of Playboy Model. Suddenly: everyone was buzzing. It looked bad for Southwest -- very bad.

But like the Teflon Don of airlines, Southwest bounced back, apologizing to Kyla and offering a skimpy fare sale in her honor. Southwest did not get her permission to use her name in its advertising. It did not affect Southwest's prospects in the slightest.

Now Southwest is memorialized as the launchpad for the fake-blonde-who-could turn 15 minutes into too long; and it's not lost a bit of its edgy, sexy cache. Bravo, Southwest, for turning mud into smutty gold.

Southwest Airlines Co. (NYSE: LUV) is scheduled to report third quarter earnings tomorrow morning. With oil cost concerns weighing heavily on the airline industry, Southwest has responded to that pressure by upping one-way fares by as much as $10. One analyst concern is that if fare prices go up too much, discount carriers will lose customers to the legacy carriers. The company has been increasing capacity over the quarter, though some analysts expect demand to diminish as consumer spending wanes. LUV chief executive Gary Kelly said he is cautious about the economy and air travel demand, but has no immediate plans to curb expansion. LUV's last earnings miss was in Q3 2006, when the company fell one penny shy of EPS expectations. If you think that the company 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 LUV.

After hitting a one-year high of $16.96 in August, the historically volatile stock was pounded over the next two months, largely due to record-setting oil prices. LUV opened this morning at $14.59. So far today the stock has hit a low of $14.50 and a high of $14.64. As of 10:50, LUV is trading at $14.61, up $0.10 (0.7%). The chart for LUV looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $12.50 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 5 months as long as LUV is above $12.50 at March expiration. Southwest would have to fall by more than 14% before we would start to lose money. Learn more about this type of trade here.

MOST NOTEWORTHY: Motorola, Nokia, General Mills, AudioCodes and OceanFreight were today's noteworthy upgrades:

• Cowen upgraded shares of Motorola Inc (NYSE: MOT) and Nokia Corporation (NYSE: NOK) to Outperform from Neutral. The firm expects Motorola to benefit as the mobile phone market in North America improves as market supply tightens in Q4 and results in better unit pricing, while Nokia's new phones put it in a position to realize higher unit sales.
  
• Credit Suisse upgraded shares of General Mills Inc (NYSE: GIS) to Outperform from Neutral citing management's improved execution and openness, and well as valuation.
  
• Cantor raised shares of AudioCodes (NASDAQ: AUDC) to Buy from Hold after channel checks suggested that Q3 business is tracking well.
  
• OceanFreight Inc (NASDAQ: OCNF) was upgraded to Buy from Neutral at Oppenheimer on valuation and strong dry-bulk fundamentals.

OTHER UPGRADES:

• Lehman upgraded shares of Roche Holding (OTC: RHHBY) to Overweight from Equal Weight.
  
• Goldman upgraded Southwest Airlines (NYSE: LUV) to Neutral from Sell.
  
• Deutsche Bank upgraded Buckeye Partners (NYSE: BPL) to Buy from Hold.
  
• Citigroup raised Canadian Natural Resources (NYSE: CNQ) to Buy from Hold.

The move is designed to increase load levels on Southwest flights, and could give the airlines leverage as it fights for gates at large airports that serve international travel.

The airlines is also revisiting other standard Southwest practices such as no in-flight meals and no reserved seating, looking for ways to enhance its appeal. I wonder if the launch of Virgin America is rattling Southwest's skycage?

It may want to consider issuing bathroom passes to those stranded on the runway, as a no-brainer competitive advantage.

Picture this: You arrive for your Southwest Airlines (NYSE: LUV) flight early. You manage to avoid packing excessive amounts of liquids in your carry-on baggage. You remember your ID, you wait until your seat is called, you stow your bags properly. You're even prepared to turn off your electronic devices and stow your tray table and put your seat in its upright and locked position when ... you're asked to leave the plane because you're showing a little too much leg.

Haha! What is this, 1951? Nope. It's 2007, and a few months ago waitress Kyla Ebbert (who works at Hooters, where scantily-clad is a good thing) was escorted off a Southwest Airlines flight from San Diego to Tucson because her outfit -- a miniskirt, tank top, and cropped sweater -- was too revealing (I don't see any cleavage and she was wearing a bra). She put up a fuss and was eventually let back on the plane after a lecture on her dress, or lack thereof.

Update: After apologizing to Ebbert, Southwest Airlines held a fare sale in honor of miniskirts -- it was fabulously popular with customers, but Kyla wasn't so pleased. To spite them -- or perhaps to take advantage of her 15 minutes of fame before it went away, leaving her still-penniless -- Kyla agreed to pose nude for Playboy.

Southwest Airlines has a history of questionable fashion judgment -- see here:

I'm all for appropriate clothing, but personally saw nothing in Ebbert's outfit that was cringe-worthy. And if it was?

On Wednesday, the first Virgin America Airbus A320s will take flight from New York (JFK) to Los Angeles (LAX) and San Francisco (SFO). The offshoot of European giant Virgin Atlantic, VA is owned primarily by Black Canyon Capital and Cyrus Capital Partners. It enters the market promising to deliver better prices and service than its rivals.

Its immediate rivals would appear to be JetBlue (NASDAQ:JBLU) and Southwest Airlines NYSE:LUV), both airlines operating on a model established by Virgin Atlantic focused on price, price, and price. How likely is Virgin America to make an impact on the increasingly crowded and fragile American air industry?

It has already driven down the price of the NYC-SF route to $250, according to the Wall Street Journal, significantly undercutting its rivals. How much of this price reflects lower costs, versus acceptable losses to establish business, is not clear. The airlines does start with new planes and hardware and new (cheap) hires, so it likely is starting with the lowest overhead it can anticipate.

JetBlue and Southwest, on the other hand, are already struggling with the increased expense of maintaining well-used equipment and the growing salary expectations of experienced crews, leaving them less room to trim costs.

Today's Wall Street Journal has an article discussing the new launch of Virgin America, and its potential impact on other discount and legacy carriers. The company is said to be well funded and includes many of the same comforts as other carriers, at a time when customer satisfaction in the U.S. is at near-lows.

The thing is that a new start-up isn't likely to hit the legacy carriers as much. Larger discounters like Southwest Airlines (NYSE: LUV) and Jetblue Airways Corp. (NASDAQ: JBLU) could feel the crunch down the road, but they won't even notice this launch for some time. Grabbing gates at major airports is no longer easy, and rolling out new routes takes time. At launch, the flights are only originating out of select spots: New York-JFK, Washington DC-IAD, San Francisco-SFO, Los Angeles-LAX, and Las Vegas. From Los Angeles, Virgin America only flies to New York, San Francisco, and DC; that San Francisco route is already extremely competitive. The New York departures are across country to L.A., Vegas, and San Francisco, so it seems the carrier will initially be competing in the longer-haul routes. The San Francisco to L.A. route is priced as low as $44 before taxes and fees.

This is added competition, but this has been in the works for years. Jetblue had some customer service issues that turned into a disaster. Southwest is starting to feel some of the heat because it isn't really THAT much of a discounter to legacy carriers if you don't book way in advance on the beloved "internet only" fares; and they are feeling some heat now that their fuel hedges are coming more in-line with other carriers. The real winner here is going to be you and me. Branson is already a bajillionaire, and this will be just one more tool keeping the air travel costs in line.

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

The second quarter is now underway but rising stock prices and word that earnings growth may slowing makes market gains in the second half much less likely.

Some sectors are almost guaranteed a strong finish this year. With oil prices moving toward $75 and reports that supply might tighten further, Exxon (NYSE:XOM) and ConocoPhillips (NYSE:COP) will not only have good quarters. They should also have splendid guidance.

The other side of the oil story is grim. Big auto companies including General Motors (NYSE:GM) and Ford (NYSE:F) will come up against a bigger headwind as consumers move to fuel efficient cars, which tend to be marketed by Toyota (NYSE:TM) and Honda (NYSE:HMC). GM and Ford are being upgraded by analysts on the assumption that the UAW will give them cost concessions. But that will not matter much if sales continue to fall.

More oil price fall-out is likely with airlines. Southwest (NYSE:LUV) have said that, even with fuel-hedging, costs for operating the company are moving up and leverage to charge passengers more is moving down.

If oil does continue to move up and interest rates also rise, consumers are likely to view themselves as poorer than they were earlier in the year. At some point this starts to hurt sales at large consumer goods companies like Procter & Gamble (NYSE:PG). The number of customers who will buy a new $20 razor can't grow if consumer spending is not robust.

The largest financial institutions like Goldman Sachs (NYSE:GS) and JP Morgan (NYSE:JPM) are somewhat walled off from mortgage problems. Unless they are buying mortgage instruments, direct loans for homes are off their books. This leaves earnings from lending to private equity interests as their primary engine for growth. Rising interest rates will certainly hurt deal flow and earnings may fall off. Goldman could be particularly vulnerable to a hostile deal environment.

Tech has gone into a schizophrenic period. Some of the aging firms like Microsoft (NASDAQ:MSFT) and Yahoo! (NASDAQ:YHOO) cannot seem to get out of their own ways. Any miss on earnings at these is likely to push shares down. The market darlings, especially Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG) will have to put up might impressive numbers to keep their valuations high. That means that cheap tech stocks and expensive tech stocks both need to perform to avoid one set of investors who are already disappointed and another set which are euphoric.

Not much room for error.

Douglas A. McIntyre is a partner at 24/7 Wall St.

When Herb Kelleher, Southwest Airlines' (NYSE: LUV) ran the company for over two decades, all he did was add planes and add routes. During most of the early 1980s, the company, still a small player in the industry, traded below $1. But by early 2001, its shares were above $20, and, at one point, it had a market cap bigger than American Airlines(NYSE: AMR).

Over a period of two decades, shares of Southwest outperformed any other US airline, but in the last two years, the shares have been flat.

The airline's problems have become so acute that it is cutting plane orders and pulling back on expansion. As The Wall Street Journal points out: "Southwest's unit costs, or costs to fly each seat one mile, have risen nearly 20% over the past four years on higher fuel prices and increased labor costs."

What can Southwest do? Not much. Rivals like JetBlue (NASDAQ: JBLU) enter the market with claims of great customer service and low costs. Some of the new competitors may go out of business, but they still take customers, even at a loss, to pick up share. As Robert Crandall, former CEO of American once said "the airline industry is the only industry where the dumbest companies set the fares." Upstarts may go out of business, but they hurt the ticket price structure for everyone else.

Southwest can move planes to more profitable routes, just like other large airlines. It can try to cut labor costs.

But, the place used to be a fun company to work for. All of the employees were out to beat the bigger guys.

Now, Southwest is just another airline.

Douglas A. McIntyre is a partner at 24/7 Wall St.