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.

MAJOR PAPERS:

• Following the collapse of The Bear Stearns Companies Inc (NYSE: BSC), the industry is rampant with rumors wondering about the financial well being of scores of other institutions, according to a Wall Street Journal report called "The Credit Crisis Hits Wall Street". True or not, its giving fits to the companies, regulators, and investors.
• Skyrocketing fuel prices and a weakened economy are taking their toll on the airline industry, reported the Wall Street Journal. Additionally, the proposed Delta Air Lines Inc (NYSE: DAL) merger with Northwest Airlines Corporation (NYSE: NWA) has lost its momentum as airline pilots cannot agree on a structured seniority system.

OTHER PAPERS:

• According to people close to the situation, the New York Times reported that before the end of the month, Citigroup Incorporated (NYSE: C) is planning to lay off another 2,000 investment bankers and traders.
• The Detroit News reported that Ford Motor Company (NYSE: F) appears to have fallen short of its goals in the latest, and possibly last, round of company-wide buyouts for hourly workers.

MAJOR PAPERS:

• To help stabilize the housing market, the Wall Street Journal reported that the Bush Administration is planning to help create fresh funding for mortgages. The plan, which still requires final approval, is said to ease an excess-capital requirement for government sponsored organizations Federal National Mortgage Association (NYSE: FNM), or Fannie Mae, Federal Home Loan Mortgage Corporation (NYSE: FRE), or Freddie Mac, and the Federal Housing Administration.
• The Wall Street Journal also reported that a merger between Northwest Airlines Corporation (NYSE: NWA) and Delta Air Lines Inc (NYSE: DAL) may be derailed after Delta pilots notified executives they remain unable to reach an agreement with Northwest pilots on how to integrate pilot ranks should the two combine.
• The Financial Times reported that BAE Systems Plc (OTC: BAESY) won a $715M order to supply nearly 1,500 mine-resistant vehicles from the U.S. government.

OTHER PAPERS:

• The Chinese government has locked out Australian mining giants BHP Billiton Limited (NYSE: BHP) and Rio Tinto Plc (NYSE: RTP) from selling iron ore into its daily spot market, the Sydney Morning Herald reported. Mining sources said that the decision may have already cost Australia up to $300M in export profits.

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."

MAJOR PAPERS:

• A memo sent by Delta Air Lines Inc (NYSE: DAL) to the company's employees regarding Delta's merger talks with Northwest Airlines Corporation (NYSE: NWA) stated that that no "potential transaction meets all [of Delta's] principles." The memo, the Wall Street Journal reported, is seen as a sign that merger talks between Delta and Northwest have stalled.
• A group of 14 hospitals and the Securities Industry and Financial Markets Association, a Wall Street trade group, asked the SEC to buy back the debt they had issued, the Wall Street Journal also reported.
• German lender HSH Nordbank has filed a lawsuit against UBS AG (NYSE: UBS) for allegedly maneuvering to saddle the German bank with troubled securities. HSH Nordbank contends that UBS sold it $500M in complex investments, which a UBS hedge fund later used as a receptacle for troubled subprime-mortgage securities, according to the Wall Street Journal.

WEB SITES:

• According to FAO Newsroom, world fertilizer production is expected to outstrip demand over the next five years and will support higher levels of food and biofuel production.

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.

MAJOR PAPERS:

• The Wall Street Journal reported that KKR Financial Holdings LLC (NYSE: KFN), a unit of Kohlberg Kravis Roberts, revived concerns of a credit crunch after it asked for a restructuring of billions of dollars in short-term debt.

OTHER PAPERS:

• According to sources, the Chicago Tribune reported that Deutsche Lufthansa AG (OTC: DLAKY) could look to take an equity stake in a merger between Continental Airlines Inc (NYSE: CAL) and UAL Corporation's (NASDAQ: UAUA) United Airlines.
• The Associated Press reported that the pilots' unions of Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) are unable to agree on how seniority for the companies' pilots would work under a combined carrier. The impasse puts the deal in "serious jeopardy," inside sources reported.

WEB SITES:

• Electronics retailer Sharper Image Corporation (NASDAQ: SHRP) has filed for bankruptcy, citing declining sales and profitability, Bloomberg reported.

Continental (NYSE: CAL) closed at $28.70 Thursday.

CAL and United Airlines (NYSE: UAUA) are in advanced negotiations and could complete a combination quickly if Delta (NYSE: DAL) and Northwest Airlines (NYSE: NWA) strike a deal, says Dow Jones.

WTI Crude oil is recently up .12% to $95.57 according to Bloomberg.

CAL March option implied volatility of 71 is above its 26-week average of 58 according to Track Data, suggesting larger price movement.

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

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.

MAJOR PAPERS:

• Within two weeks a merger between Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) is expected to be announced. Not far behind may be one between UAL Corporation's (NASDAQ: UAUA) United Airlines and Continental Airlines Inc (NYSE: CAL), the Wall Street Journal reported.

WEB SITES:

• Bloomberg reported that Berkshire Hathaway Inc (NYSE: BRK.A) Chairman Warren Buffett forecast that the dollar's value is likely to decline if policies remain unchanged and said he believes a credit crunch is not under way.
• Tech Crunch reported that either Google Inc (NASDAQ: GOOG) or News Corp's (NYSE: NWS.A) MySpace is likely to announces a social space acquisition in the near-future. According to industry sources, the acquisition could be in the $1B-$1.5B range and may involve Bebo.

MAJOR PAPERS:

• Although Delta Air Lines Inc (NYSE: DAL) would like to merge with either UAL Corporation's (NASDAQ: UAUA) United Airlines or Northwest Airlines Corporation (NYSE: NWA), the company is close to Air France-KLM (NYSE: AKH), and together the two may be able to better shape a deal, the Wall Street Journal's "Heard on the Street" reported.
• The Wall Street Journal also reported that recent acquisitions by Sun Microsystems Inc (NASDAQ: JAVA) and Oracle Corporation (NASDAQ: ORCL) have suggested factors like a slowing economy could kick the high-tech deals into a "higher gear".
• Following a risk/reward reassessment, UBS AG (NYSE: UBS) decided to wind down its Switzerland-based private banking business for rich U.S. clients; the decision was announced internally in late December, but confirmed publicly this week, the Financial Times reported.

OTHER PAPERS:

• According to the Economic Times, after the dissolution of a proposed joint venture with Rajesh Exports, Fossil Incorporated (NASDAQ: FOSL), the U.S. fashion accessories giant, is set to enter India on its own.

MOST NOTEWORTHY: Aerospace stocks, WuXi Pharma, Myriad Genetics, Cypress Bioscience and Knology were today's noteworthy initiations:

• LYON initiated shares of aerospace stocks including Goodrich Corporation (NYSE: GR), TransDigm Group Inc (NYSE: TDG) and Triumph Group Incorporated (NYSE: TGI) with Add ratings and a $74 target, $45 target and $90 target, respectively.
  
• WuXi Pharmatech (NYSE: WX) was started with a Hold rating and $29 target at Jefferies on valuation. JP Morgan started shares with a Neutral rating and Credit Suisse initiated shares with an Outperform rating.
  
• Myriad Genetics Inc (NASDAQ: MYGN) was started with a Hold rating and $50 target at Citigroup, as the firm is cautious on the Phase III Flurizan results and does not recommend putting new money here at these levels.
  
• Citigroup also initiated shares of Cypress Biosciences Inc (NASDAQ: CYPB) with a Buy rating and $22 target as the firm believes Milnacipran has sufficient database for approval and is capable of gaining meaningful market share as firstline therapy.
  
• Knology Inc (NASDAQ: KNOL) was initiated with a Buy rating and $25 target at BWS Financial, as the firm believes the company's growth potential is greater than other cable companies through a business plan that allows it to have operations in all regions of the U.S.

OTHER INITIATIONS:

• Wachovia resumed coverage of Liberty Media Corporation (NASDAQ: LCAPA) with an Outperform rating.
  
• Northwest Airlines Corporation (NYSE: NWA) and Delta Air Lines Inc (NYSE: DAL) were initiated with Overweight ratings at JP Morgan.
  
• Thomas Weisel started shares of Tyco Electronics (NYSE: TEL) with a Market Weight rating.
  
• Goldman initiated shares of Electronic Arts Inc (NASDAQ: ERTS) and Activision Inc (NASDAQ: ATVI) with Buy ratings and THQ Inc (NASDAQ: THQI) with a Neutral rating.

Delta Air Lines Inc. (NYSE: DAL) has selected Richard H. Anderson to replace its retiring CEO, a move that analysts believe will pave the way for potential mergers with other airlines. Deals could happen within the next year, as such ventures may have a harder time getting approval if Republicans lose control of the White House in 2008. Analysts specifically named Northwest Airlines (NYSE: NWA) as a merger candidate with Delta, since the new CEO was formerly in charge at NWA.

After hitting a one year high of $21.95 in April, the stock has been suffering lately, hitting a year low of $14.94 earlier this month. This morning, DAL opened at $18.15. So far today the stock has hit a low of $17.74 and a high of $18.65. As of 10:55, DAL is trading at $18.10, up $0.39 (2.2%). The chart for DAL looks bearish but improving, and S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $15 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk and leverage returns. For this particular trade, we will make a 8.7% return in just 2 months as long as DAL is above $15 at October expiration. Delta would have to fall by more than 17% before we would start to lose money.

DAL hasn't been below $15 by more than a few cents since it emerged from bankruptcy and has shown support around $15 recently. This trade could be risky if crude oil prices soar again, but even if that happens, this trade could be protected by its support right around $15.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Brent neither owns nor controls positions in DAL or NWA.

In another lap tray to the belly, customers of Milwaukee-based Midwest Air Group (NYSE: MEH), repeatedly named as one of the nation's best airlines for customer service and comfort, learned today that the airline will be purchased by a group led by TPG Capital. The investor group includes Midwest's competitor Northwest Airlines (NYSE: NWA), which is reviled by passengers for its cattle-car seating, lack of timeliness and failure to understand the concept of customer service

The acquisition offers little in the way of synergy to the two airlines. They duplicate many routes, and Midwest flies the Boing 717, while Northwest uses 747s and 757s. What the deal does accomplish is to block the expansion of a potential competitor in Northwest's upper midwest routes. While the deal secures the present management of Midwest, I suspect it's just a matter of time before the malaise reaches Milwaukee.

Midwest has been fighting off suitor Airtran Holdings' (NYSE: AAI) hostile takeover attempt, which reached $15.75 and $389 million before it folded its cards late last week. TPG, which grew out of the Continental Airlines (NYSE: CAL) takeover in 1993, is offering $16 per share, or over $400 million, to take the company private. The Midwest board voted Sunday to go forward with the TPG offer, and an agreement is expected by midweek.

Travelers expecting to fly on Northwest Airlines (NYSE: NWA) had another tough couple of days this past weekend. The company has been plagued recently by an insufficient pilot workforce, which forced the airline to cancel hundreds of planned flights over the weekend.

The official line coming out of the company is that flights were forced to be canceled as a result of "significant spikes" in pilot absenteeism, but has been very careful not to come straight out and accuse the pilots of an illegal job action. Northwest emerged from bankruptcy a couple months ago, and during the course of its bankruptcy procedures was able to win concessionary labor contracts. This, obviously, has not gone over too well with its workforce, and could be part of the problem that has led to the "spike in absenteeism."

This train of thought, however, is quickly negated by Monty Montgomery, who is the spokesman for the Air Line Pilots Association branch at Northwest. According to Mr. Montgomery, the problem here has nothing to do with any unhappiness among Northwest pilots, but instead, the blame can be put squarely on Northwest's shoulders. In an official statement regarding this past weekend's cancellations, Mr. Montgomery stated that the problem "is and always has been a staffing problem."