If you think all those new airline fees were a temporary measure to help these beleaguered companies through an economic crisis, you're out of your mind. Now that they've had a taste of how much they can make by charging you for an extra bag or a little more leg room, they're hooked. More important, the fees are making up a meaningful portion of airline revenues and profits, so investors aren't likely to be satisfied with a return to normal – well, they can't. Extra fees are the new "normal."

United Airlines (NASDAQ: UAUA), US Airways (NYSE: LCC) and American Airlines (NYSE: AMR), according to an influential analyst, have run out of options. Jamie Baker of JPMorgan said in a July 20, 2009 report that these companies couldn't do anything to prevent a cash crisis. They only savior available to them would have to be an outside investor. To call the position grim would be optimistic. Unfortunately, it couldn't have come at a worse time.

As Baker was walking the bear into the airline industry, United was starting to celebrate its change in direction. The carrier has improved its on-time rate, according to a USA Today report, and its operations are coming around. Despite the fact that the airline industry has been brutalized by the global recession, the airline has made some progress. Through August, the company's share price doubled, and its ascent has continued in September. So, the company is locked in an ongoing struggle to manage its identity, cope with its past and shape how the world sees it today.

The operational "makeover" has resulted in a reduction of its fleet from 601 jets in 2000 to 386 as of the summer of 2009. In terms of passenger traffic, it's in the #4 spot in the United States – trailing Delta (NYSE: DAL), Southwest (NYSE: LUV) and American. With Q2 revenues off 25.2% year-over-year, however, drastic measures are still necessary.

To get an idea of how poorly United Airlines (NASDAQ: UAUA) has performed, may I suggest viewing this little nugget.

If United is breaking guitars as accused, I would fly another airline. As an avid guitar player myself, such carelessness is unacceptable. The airline industry is struggling, and poor customer service does not help. The above video is now going viral on the Internet - what a PR disaster for United.

With such uncertainty, following an absolute return strategy continues to offer investors the biggest bang for their buck. There is no sense in guessing where the market will be down the road.

Instead, buy cheap stocks and sell stocks that are expensive. Then blend the two approaches together in one portfolio and chances are you'll make money.

Even with a huge rally in stocks, the S&P 500 ended the second quarter with a year-to-date gain of 1.78%. That is a vast improvement compared to the 11% loss at the end of the first quarter, but it's a minimal return for taking risk in the stock market.

Investors need to do better -- and they can.

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.

A consequence of a weakening airline sector is the pain it will cause plane-maker Boeing (NYSE: BA). With capacity tightening, the need for aircrafts is diminishing.

Imagine planes just sitting idle in the desert. That vision is becoming a reality.

Fortunately for investors, that vision will take time to play out. In the meantime, Boeing gets a free pass as they work through years of order backlog that built up during the last business cycle.

If you take a look at Boeing during the last few months, it is clear that investors have yet to catch on to a world of lower revenues going forward.

As an investor, I really despise the airline sector at the moment. These companies are notorious for being poorly run cash-losing machines.

Now, in the midst of a deep recession and too many airplanes flying too few customers, airline stocks can be expected to be poor performers in the short run and maybe longer.

I made the sector part of my Top 10 Stocks to Avoid in 2009. The main thesis, aside from the obvious recessionary issues, was that oil prices would resume their climb at some point in 2009.

Specifically, I suggested investors avoid Delta Airlines (NYSE: DAL) and United Airlines (NASDAQ: UAUA).

Higher oil prices directly impact the bottom line of the air carriers. The higher oil goes, the more difficult it is for the airlines to make a profit. This summer, with oil prices hitting $150 per barrel, the future of the group was in peril.

That said, the reality of higher prices caused the group to make some necessary changes that included mergers, reduced capacity and important surcharges. The operating environment had the potential to bring much needed discipline to the carriers.

Unfortunately, higher fuel prices did not last long enough to bring enduring change to the group. As prices fell, airline stocks rallied. It was looking good until the economy tanked.

With the recession, oil prices suddenly mattered less. Instead, the focus was on the consumer and business traveler cutting expenses during a contraction.

The airline sector loses if the economy rallies, as such a state brings higher oil prices and lower profit. If the economy stalls, the sector loses customers and revenues fall to unsustainable levels.

The point is that it is no-win situation for the group.

Even with some modest recovery in airline stocks, it may be too early to celebrate. The worst may not be over for the industry.

The International Air Transport Association says that global losses for airlines could top $6.1 billion this year. The Wall Street Journal quotes ATA Chief Executive and Managing Director Giovanni Bisignani as saying, "We are bracing for more situations of airlines collapsing" amid higher fuel prices and lower revenue.

The slowdown is apparently moving to Asia, a major destination for many large US and EU airlines.

United (NASDAQ: UAUA) is a good example of a US airline that many thought would be on the rebound. New fear of rising oil prices has spoiled that a bit. After falling from a 52-week high of $51.60, shares crashed to $2.80. They have recently made a minor recovery to $12.40. But, in the last two days, UAUA shares have been off sharply.

Oil is still just below $120. Even at that level, down from $143, airlines face huge increases in fuel prices over last year. A modest disruption in oil supply could send prices back up again.

The market sees US airline stocks as having potential for big returns. But, with the price of oil making a potential bottom, the carriers are still in too much trouble to have a real recovery. Buying shares in the companies still offers more risk than reward. The industry may still have operators that have valuations heading toward zero.

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

"Combined with the previously announced approximately $550 million raised from new transactions in the second and third quarters, the company will have increased its total cash balance by $1.7 billion and continues to have more than $3 billion in unencumbered hard assets," UAL said in a press release.

MAJOR PAPERS:

• In a move to help cut expenses and save on fuel prices, UAL Corporation (NASDAQ: UAUA), parent of United Airlines, will reduce its 460 airplane fleet by 70 jets. Not yet known is how may jobs will be affected, the Wall Street Journal reported.
• In an all stock deal, J.M. Smucker Co. (NYSE: SJM) is expected to buy Folgers coffee from The Proctor & Gamble Company (NYSE: PG) for an estimated $2B, according to the Wall Street Journal. Folgers, the best selling ground coffee in the U.S., has annual sales of about $1.6B.
• The Financial Times reported that Lehman Brothers Holdings Inc (NYSE: LEH) lost $500M-$700M on some of its hedging positions in Q2, which have contributed to a larger than expected loss that could result in the bank raising more capital by selling a stake to an outside investor. Lehman has begun negotiations with potential investors, including asset managers and Asian banks, sources said.

• According to sources, the Rocky Mountain News reported that troubled home builder Beazer Homes USA Inc (NYSE: BZH) is pulling out of Colorado. Beazer, which is being investigated for mortgage fraud by several government agencies, has built homes in the suburbs of Denver and in Colorado Springs.

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).

• 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.

• 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.

MAJOR PAPERS:

• H.J. Heinz Co. (NYSE: HNZ) is today expected to increase its sales and profit projections for the next two years, as it reports results of its fiscal year ended April 30. The Wall Street Journal reported that sales are to grow 6% or higher from 4%, while earnings per share growth for the next two years is projected to grow between 8% and 11% from the earlier projection of 7% to 9%.
• It appears that Vistaprint Limited (NASDAQ: VPRT), a graphic design services and printed products company, counts on referral fees from pop up rewards programs on it website for a certain amount of its revenue and profit and also relies on the referral of its customers to outside firms offering rewards programs, which turns out to be a monthly fee for services such as discounts on movies and amusement parks, according to the Wall Street Journal's "Heard on the Street". Some believe the stock, whose shares have plummeted over concerns of slowing revenue and slimmer gross margins, may be trading too high for its own good.
• According to people familiar with their plans, the Financial Times reported that the CEOs of UAL Corporation's (NASDAQ: UAUA) United Airlines and US Airways Group (NYSE: LCC) will today meet to discuss the carriers' potential merger agreement.

• The Independent reported that for the second time this month, Barclays Plc (NYSE: BCS) revised lower its calculation of analysts' consensus for its full-year profit, cutting its 2008 figure by nearly 8% to GBP5.876B pre-tax; Barclays cut the calculation 15% two weeks ago.