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.

MAJOR PAPERS:

• The LiveTV unit of JetBlue Airways Corporation (NASDAQ: JBLU) is buying Verizon Communications Inc's (NYSE: VZ) Airfone network, the Wall Street Journal reported.
• As Lehman Brothers Holdings Inc (NYSE: LEH) is about to report a second quarter loss of about $2B, the firm is closing in on raising over $5B in new capital, the Wall Street Journal reported. Once source of Lehman's new funding is reportedly the New Jersey Division of Investment.
• The Financial Times reported that General Electric Company's (NYSE: GE) NBC Universal and British private equity firm GMT Communications Partners are expected to soon acquire Bigpoint, a German-based computer games website.

• According to the Independent, the credit crunch has cost the jobs of about 100 bankers at Barclays Plc (NYSE: BCS). The bank cut about 20 individuals on the leveraged finance team and will reportedly cut 80 more in investment banking and IT support.

With surging crude oil prices, and a slower economy, airline stocks don't rank high on investor wish lists. You don't hear colleagues standing around the water cooler singing the praises of the airlines. So what would make a sane investor contemplate purchasing an airline stock? I am not sure myself but if you take a long look at JetBlue Airways Corporation (NASDAQ: JBLU), you may feel like throwing the dice.

Mark Kreiger at SeekingAlpha.com has a really good analysis of why JetBlue stock is compelling. He says, " The airlines are responding to the fuel crises by doing all the right things such as utilizing fuel hedging programs, initiating capacity reductions and reducing overall costs."

Kreiger singles out JetBlue because their Q1'08 report soundly beat analyst estimates. The company has $1 billion in cash and has a book value of $6. Well above the approximately $4.50 price per share. More interesting is a potential short squeeze setting up on the stock. Kreiger analyzes this further at the site, and it's worth a close read.

If you believe that at some point crude prices will drop, and you are looking for a way to play that drop, you potentially may want to do some research on JetBlue.

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 5/27/08.

JetBlue Airways (NASDAQ: JBLU) -- option prices not reflecting takeover Speculation. JBLU is recently up $0.54 to $10.89 on unconfirmed takeover speculation. JBLU named Dave Barger President & CEO officer this morning; founder David Neeleman will continue to serve as Chairman. JBLU June option implied volatility of 42 is near its 26-week average according to Track Data, suggesting larger price risks.

Electronic Data Systems (NYSE: EDS) -- implied volatility stays Elevated after EPS; suggests risk. EDS is recently trading at $28.07. EDS reported 1st quarter revenue of $5.2 billion on 5/3. EDS June 30 calls have traded 40 times on transaction volume of 1,858 contracts. EDS June 30 calls are bid 45 cents above its theoretical value of 25 cents. EDS June option implied volatility of 28 is above its 26-week average of 23 according to Track Data, suggesting larger near-term risk.

Option volume leaders today are: Dendreon Corp. (NASDAQ: DNDN), General Motors (NYSE: GM), Whole Foods Market (NADSAQ: WFMI) and Intel Corp. (NASDAQ: INTC).

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

Since mid-February, JetBlue Airways (NASDAQ: JBLU) has been in a state of meltdown, according to Julie Johnsson of The Chicago Tribune. JetBlue had to cancel over 1,000 flights and it took days to recover from that mess. Once the airline's home base at JFK Airport in New York City closed due to an ice storm, JetBlue had neither the planes nor the personnel to construct a work-around solution. JetBlue then compounded the problem by not canceling additional flights soon enough or by leaving airplanes stranded on taxiways for hours before eventually canceling the flights. Such widespread negative publicity sounds like a recipe for corporate disaster. To counteract the negative publicity, JetBlue CEO David Neeleman issued an apology to the traveling public and released JetBlue's new Customer Bill of Rights. It is difficult to tell who is more gullible, CEO Neeleman who thinks that a marketing ploy will undo horrendous negative publicity caused by systematic corporate malfunctioning or investors who have bid the stock up in recent days. JetBlue stock closed at $11.82 on Tuesday, 6 March, up 2%.

JetBlue's Customer Bill of Rights is merely boilerplate blather that presents passengers' legal rights as though JetBlue were doing them a favor. If the flight is delayed by 1-2 hours, the customer gets a voucher for $25. That may be enough to buy lunch at the airport. For delays 2-4 hours, the voucher increases to $50. But please bear in mind that these delays must be due to a "controllable irregularity," such term being nowhere spelled out in the Bill of Rights. If the plane has landed but cannot get to a gate to unload after 3 hours, the customer gets a free round trip ticket on the same airline that couldn't get the job done in the first place.

CEO Neeleman is very proud of the guarantee that if a JetBlue flight has been stranded on the taxiway for more than 5 hours, JetBlue promises to return to the terminal where customers can deplane and begin the process all over again. In such case, passengers may want to keep the number for Amtrak handy.

MOST NOTEWORTHY: In addition to Palm Inc. (PALM) and Research in Motion (RIMM), four prominent Airlines topped today's list of downgrades.

• Merrill Lynch downgraded shares of Palm, Inc. (NASDAQ:PALM) to Neutral from Buy following the company's reduced second-quarter outlook.
• BMO Capital Markets downgraded Research in Motion Ltd. (NASDAQ:RIMM) to Market Perform from Outperform, citing valuation.
• Benchmark, a boutique firm, downgraded Continental Airlines (NYSE:CAL), JetBlue Airways Corp (NASDAQ:JBLU), US Airways Grp (NYSE:LCC) and UAL Corp (NASDAQ:UAUA) to Hold from Buy, citing valuation.

OTHER DOWNGRADES:

• Quest Software, Inc. (NASDAQ:QSFT) was downgraded at Pacific Crest to Sector Perform from Outperform based on poor visibility and option concerns.
• Finally, Citigroup said shares of Cox Radio (NYSE:CXR) and Cumulus Media, Inc. (NASDAQ:CMLS) have rallied on LBO speculation that is unlikely to prove out in the near-to-intermediate term and that 2007 growth expectations could prove to be optimistic; Citigroup downgraded both companies to Sell from Hold.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).