More Monday merger fun, this time from the airline sector. Reportedly, Southwest Airlines (LUV) announced that it will purchase AirTran Airlines for roughly $1.42 billion.

This move will be funded mainly with debt, and it will help Southwest establish a larger presence in cities like Boston and New York. What's more (as the article points out), Southwest will now be in "head-to-head competition with Delta Air Lines in Delta's home base of Atlanta."

Early this morning, United Airlines (UAUA) and Continental Airlines (CAL) announced that they will join forces to create the world's largest airline in a $3 billion deal.

The new airline will be bigger than Delta Air Lines (DAL) and will send flights as far as Shanghai and South America. The companies believe that the span of destinations should attract more business travelers and their higher fares. The deal, which will need approval from shareholders and antitrust regulators, is expected to close in the fourth quarter. The new company will be known as United Continental Holdings and will be based in Chicago. The airline's largest hub will be located in Houston.

The fact that 769.6 million passengers stepped onto planes in the U.S. last year sounds pretty impressive, right? Well, it's 5.3% less impressive than the year before, when 812.3 million boarded flights ... not to mention the 838.2 million in 2007.

The airline industry has spent the past two years getting brutalized by the global recession, which finally pushed it below the 800 million passenger threshold for the first time since 2004, when 763.7 million passengers took to the skies.

The silver lining to the travel slump last year was that fewer flights made it easier for airlines to hit their deadlines. In 2009, the airline sector had its best year for on-time arrivals since 2003, largely because many routes were cut as passenger traffic fell and companies looked for ways to cut costs. According to the Department of Transportation, airlines hit a 79.5% on-time rate last year (which includes flights that were within 15 minutes of their arrival time).

Hawaiian Airlines had the best record, but it's a small regional, lacking the challenges of the major carriers. Among the big guys, Southwest's (LUV) 83% on-time rate was best, and United's (UAUA) 81% was tops for traditional air carriers. Of course, these airlines and the rest of the sector were helped along by the fact that they pad their schedule, which makes it a hell of a lot easier to show up on time.

No profit no bonus -- hell, make that no salary. The new CEO of Continental Airlines (CAL), Jeffery Smisek, says he won't take any salary or annual bonus until he brings the airline to profitability.

Smisek took the top job at Continental after the previous CEO, Lawrence Kellner, left the gig to go to a private equity firm. Last year, the firm lost $367 million in the first three quarters. A Thomson Reuters survey of analysts expects a fourth quarter loss of at least $38 million, though they're looking for a profit of at least $190 million for this year. So, Wall Street has already set Smisek's goal for him.

For years, it's been evident that smaller airlines have had an operating advantage, particularly when they use less expensive airports. They've been able to post better numbers as a result, and in the current travel slump, they've outperformed the larger carriers. Well, they've also picked up a considerable amount of market share.

According to a report by USA Today, low cost carriers now have 30% of the market in the United States. Price-sensitive consumers are turning to cheaper alternatives, even if it means (for fliers with elite status) giving up the perks they've earned through years of customer loyalty.

Across the country, big jets are disappearing -- nudged shoved aside by the little guys, which are cheaper to operate and don't require as many butts to fill seats.

The number of empty seats falls, and revenue per available seat-mile (RASM) goes up. It's pretty straightforward. But, for crowded flights, this could leave a few people stuck without their preferred routes. The alternative, of course, is an unsustainable status quo, in which a few passengers remain happy ... until the airline folds.

The US Airways (NYSE: LCC) ticker symbol says it all: LCC = Low Cost Carrier. With its latest announcement, the airline may want to change it to LEC -- Low Expense Carrier. In an attempt to keep pace with the plunging travel market, US Airways is cutting 1,000 jobs next year, shoving almost all its flying to its three hubs (Philadelphia, Phoenix and Charlotte) and Washington. Several international routes are being cut.

The airline reports that routes from its hubs have been profitable. Currently, US Airways pushes 93% of its flights through these airports, a rate it seeks to push up to 99% in 2010.

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."

Business travelers still aren't coming back to the good seats, despite airlines' best efforts. FareCompare.com reports that many business class tickets to Europe are going to be 33% to 66% cheaper this fall relative to last year. Companies are being careful with their cash – which means stacking people in coach rather than giving them a little leg room on overseas flights. With back-of-the-plane tickets going for a quarter of the price (or less) than their business class equivalents, this isn't exactly shocking.

On Wednesday, Delta's (NYSE: DAL) cheapest NYC-to-London's cheapest roundtrip coach fare was $716 (for an October 23 departure and October 30 return), according to a report in USA Today. To take the same trip in business class, you were looking at a hefty $4,634. So, even though prices are down year-over-year, it doesn't mean that business travelers are being allowed to enjoy the opportunity.

Bigger fees are compensating for shorter flight manifests. For the first half of 2009, airlines in the United States have raked in $3.8 billion from cancellation, re-booking, checked bag and other fees. Data from the U.S. Department of Transportation puts this result up from the $2.3 billion airlines generated from these fees in the first half of 2008.

While passengers haven't been thrilled with these additional charges, the airlines have had to compensate for a significant drop in passenger traffic, as the industry copes with the worst travel session since the terror attacks of September 11, 2001.

Higher fuel prices and slipping demand for air travel have prompted a change. The International Air Transport Association revised its forecast of global airline losses for the year from $9 billion to $11 billion. Revenues for the air travel industry are expected to fall 15% to $455 billion worldwide. Passenger traffic is anticipated to fall by 4%, with cargo dropping 14% for the year.

Financially, IATA CEO Giovanni Bisignani says the impact of the financial crisis has been more severe than the terror attacks of eight years ago.