What's holding the airline sector back, in addition to high jet fuel prices, and keeping the likes of AMR's (NYSE: AMR) American, Delta (NYSE: DAL), UAL's (NYSE: UAUA) United, Southwest (NYSE: LUV), and Continental Airlines (NYSE: CAL) from realizing their potential?

Many economists and analysts would agree that, along with other infrastructure and related investments, the nation's air traffic control system must be upgraded, if the United States seeks an air transportation system capable of maintaining a high level of safety -- and better service -- in the 21st century's more-crowded skies.

Further, that the United States has not already replaced an essentially generation-old air traffic control technology with a modern system is a serious demerit, and one that has -- through delays, cancellations, and other problems -- taken a toll on the flying public and the major carriers.

These are tough economic times for the nation, most would agree, and one hard-hit sector has been the airline sector, specifically the major carriers.

Surging fuel costs, the increased precautions and reviews required for the post-September 11 era, and intensifying competition for international routes has led to large losses among many major carriers - - a condition that has forced them to raise fares and implement other cost-cutting changes.

Most have also instituted a baggage fee for a passenger's second bag, with some carriers charging for all bags. Still, for the most part travelers have taken the baggage fees in stride. Although viewed as a nuisance by many travelers, the reality is a second bag, in particular, is optional weight that increases flying costs per mile. And with aviation fuel zooming past latte-price levels, that's no significant expense.

Still, US Airways Inc. may have gone one too far with the fee system. Effective today, US Airways will start charging for water on flights by coach passengers, The Wall Street Journal reported Friday (subscription required). Bottled water will be $2. Passengers flying first class are exempt from the extra fee.

No, the airlines haven't started charging by the pound. At least not yet...

Jokes aside, nobody told the airlines there'd be days like these, to paraphrase John Lennon.

Jet fuel costs -- up 84% in the past year alone -- have skyrocketed, along with the cost of just about every other product derived from the world's most vital commodity, and the airlines are looking for every conceivable way to reduce weight, reduce wind/resistance drag, and increase operational efficiency, The New York Times reported Wednesday.

The major carriers are replacing heavier seats with lighter ones, cleaning engines and planes more often, reducing the fresh water available on flights, and plugging into electric outlets instead of idling engines at the gate, among other changes, in order to cut fuel consumption.

More air travel changes ahead

Moreover, the changes -- and charges -- have only just begun, so says stock analyst C. Leonard Bauer. "Everyone knows about the added bag charges, a pain in the neck, for sure. But it could get worse," says Bauer, who also flies on a major carrier about 5-7 times per year. "In the winter you could see a per pound baggage charge, or something along those lines. So don't pack that extra winter coat when you fly this December."

Airbus said 2008 orders for the A380 superjumbo jet may be one-third lower than previously forecast, as higher fuel costs and an economic slowdown moderate travel growth, Bloomberg News reported Wednesday.

Airbus said it may receive about 20 orders in 2008 for the 525-seat A380 superjumbo, the world's largest commercial jetliner. Earlier, Airbus had projected up to 30 orders for the A380 in 2008.

Airbus' announcement did not negatively impact the stock, at least not at the outset. Shares of Airbus' parent EADS gained 28 cents to 14.95 euros in Wednesday afternoon trading on the Paris exchange.

The oil surge, which gives new indications daily that it's evolving into the world's third oil shock, bodes tougher times for airlines, and travelers alike, many analysts agree.

Moreover, those tougher times may propel "creative and avant-garde" ideas and strategies to cope with the more-challenging flying environment, by both airlines and travelers, so says C. Leonard Bauer, independent stock analyst.

American Airlines (NYSE: AMR) took the first, bold - - and controversial - - step in the 'era of new flying rules' by announcing that it would charge passengers $15 each way to check their first bag, The Dallas Morning News reported. American also reduced its flying schedule by 11-12% at the same time.

Bauer said travelers should brace for more a-la-carte changes from the major carriers, and some truly creative ones, at that. "The airlines will be looking at every way to reduce fuel usage and cover those expenses from added weight," Bauer said, "When oil was at $20 a barrel, weight was a cost factor, but now at more than $125 a barrel, it's a going-concern factor. These high fuel costs can and will force some airlines out of business if they can't recover these costs. 'Light flight' is in." Bauer added that he does not have a rating on nor own shares of any airline.

United Airlines, the second largest U.S. carrier, increased almost all domestic airfares by 3-5%, due to surging fuel costs, The Associated Press reported Friday.

It was the third increase in the past two weeks, The AP reported, for United (NYSE: UAUA), which like the U.S.'s other major carriers, is struggling to maintain a viable business model amid the largest increase in aviation fuel costs since the world's second oil shock in 1979-80.

Shares of United fell 82 cents to $14.58 on the news in Friday afternoon trading.

United's latest fare hike takes place just two days after Delta Air Lines (NYSE: DAL) CEO Richard Anderson said domestic carriers will need to raise tickets 15-20% just to break even at existing fuel prices, The AP reported.

Surging fuel costs

Independent stock analyst C. Leonard Bauer, formerly of Prudential, said cost factors affecting aviation will create a stark travel choice for business and leisure travelers, at least for the immediate future, including this summer: if you're flying a few months from now, there's an 80-90% chance you'll pay considerably more, he said.

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With Delta Air Lines and Northwest Airlines said-to-be-close to announcing a merger, according to Reuters, analysts and business executives will closely-evaluate the proposed deal's details, parsing it to see if it is capable of creating something the land of the free hasn't experienced in quite some time: a profitable major airline.

Turning aside (for the moment) points that argue that with the added cost of public subsidies of aviation and aerospace research, it's hard to envision a U.S. airline as ever being truly 'profitable,' independent stock analyst C. Leonard Bauer told BloggingStocks Monday the merged Delta / Northwest could create an assertive airline capable of racking-up revenue, even as it spurs aviation innovation and change.

The stalled Delta Air Lines (NYSE: DAL) / Northwest Airlines (NYSE: NWA) deal talks should regain momentum next week, provided Delta's management makes progress in talks with its pilots, The Wall Street Journal reported Wednesday (Subscription required).

Further, independent stock analyst C. Leonard Bauer, said that while the Delta / Northwest talks have been stalled at a traditional, formidable hurdle -- pilot seniority and pilot flight schedules -- "the stars now appear to be lining up to get this deal done."

Bauer said that since the talks began, recent data released indicates that the U.S. economy has continued to slow, and is most likely already in a recession -- never a good backdrop for airlines -- which depend on consumer disposable income for a portion of their revenue. Further, oil has resumed its 'regularly scheduled' movement: up, which has increased aviation costs by at least another 10-15%. Or as Bauer put it, "From a fuel cost standpoint, this is no time to fly commercial jets around less than half full." Oil rose $3.71 to $112.21 per barrel -- an all-time high -- Wednesday afternoon after an unexpected decline in U.S. weekly oil inventories.

Don't look for airlines to stop raising prices anytime soon, nor bend over backwards to provide creature comforts to travelers, according to one analyst.

Further, Northwest Airline's (NYSE:NWA)most recent decision to increase "fuel surcharges" - - i.e. raise ticket prices - - will remain a sector theme for at least the next few quarters, so says independent stock analyst C. Leonard Bauer.

"Airlines are facing rising fuel costs at a time when passenger demand is still solid. That means they have power to raise prices and pass their higher costs on to the consumer," Bauer told BloggingStocks Friday.

Fuel surcharge

Northwest announced Friday that on March 18 it raised fuel surcharges generally by $10 or $20 each way for flights from North America to Europe, India, Japan and most other destinations in Asia, The Associated Press reported Friday. That brings the surcharges to between $115 and $155. The surcharge on flights from Japan to North America will rise by $20 to $160 beginning May 1. Northwest also said it plans to freeze hiring pilots and flight attendants and cut domestic schedules by 5% beginning in September 2008, The AP reported.

Northwest's shares fell 5 cents to $9.16 on the news on Friday at mid-day.

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."

A disagreement among pilots camps on seniority has led to the cancellation of board meetings regarding a potential Delta Air Lines/Northwest Airlines merger agreement, The Wall Street Journal reported Friday (subscription required).

However, independent stock analyst C. Leonard Bauer told BloggingStocks Friday that he expects the issue to be resolved soon and merger efforts to move forward.

"The pilots' seniority item is always the toughest hurdle in airline talks, so a delay and a few hiccups here is not unusual," Bauer said.

Delta's (NYSE: DAL) shares declined 20 cents to $15.93, while Northwest (NYSE: NWA) fell 70 cents to $16.12 on the news in Friday mid-day trading.

The pilot talks involve two branches of the same Air Line Pilots Association, or about 11,000 pilots, The Journal reported.

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."

Delta Air Lines and Northwest Airlines may reach a merger agreement within weeks after sharing details of the plan with pilot unions, people close to the talks said, Bloomberg News reported Monday.

An announcement of the merger may come within weeks, Bloomberg News reported.

The merger would create the world's biggest airline in terms of traffic, Delta served about 74 million passengers in 2007; Northwest, about 56 million. The combined entity would vault past no. 1 carrier American Airlines (NYSE: AMR), which served 129.5 million passengers.

Delta's (NYSE: DAL) shares were down 23 cents to $19.95, while Northwest (NYSE: NWS) declined 23 cents to $20.62 in Monday afternoon trading.

Analyst C. Leonard Bauer told BloggingStocks Monday a Delta / Northwest represents a good operational fit, for several reasons.

During periods of sluggish economic activity, spotting segments of growth and commercial opportunity often can make the difference between an adequate return on equity, and a portfolio with decidedly less-impressive results. Further, due to the fact that air traffic growth should outpace global GDP growth in the immediate years ahead, aircraft leasing represents an opportunity, and in this category Genesis Lease is worth a review.

Genesis Lease (NYSE: GLS) is an aircraft-leasing company with worldwide operations and a blue chip list of customers. The company has a 15-year service agreement with General Electric (NYSE: GE) Commercial Aviation Services whereby GECAS will service GLS' leases so that Genesis can concentrate on growing its business.

Analysts like GLS' overall business model, plan to expand its lease fleet of 52 aircraft, favorable sector position, and pricing power. The Reuters F2007/F2008 EPS consensus estimates for GLS are $1.25/$1.39.

Airbus announced Wednesday that it beat rival Boeing in 2007 deliveries but trailed it in new orders.

Airbus said it delivered 453 planes to Boeing's 441 in 2007, according to a company statement. Meanwhile, Boeing (NYSE: BA) bested European-based Airbus in 2007 net new orders, 1,413-1,341. Airbus' 2007 delivery total was up 19 from 2006's 434. Airbus said it expects to deliver 470 planes in 2008.

"2007 was a challenging year but also successful year for Airbus," Airbus President and CEO Tom Enders said. "We were successful in the market and mastered the industrial challenges of the production ramp up, the timely delivery of the first A380, and the implementation of the Airbus Power 8 turn-around program. 2008 will be as challenging on all fronts. But I am sure that, with the dedication of our people and all involved, we shall master them. On the commercial side, I anticipate that our order intake will be above our deliveries."

Delay city

Airbus has been plagued by a series of production setbacks as it rolls-out two new commercial aircraft deemed critical to the aerospace giant's early 21st century aviation strategy: the 500-seat A380 superjumbo jet and the A350.