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.

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."

DJIA: 9666.48 -40.96 (-0.42%)

NASDAQ: 2090.92 -16.69 (-0.79%)

S&P 500: 1044.44 -6.34 (-0.6%)

Analyst upgrades:

• FBR Capital upgraded McAfee (NYSE: MFE) to Outperform from Market Perform after channel checks indicated the company's September quarter deal flow has been stronger than expected. FBR raised its target on shares to $50 from $41.
• Thomas Weisel upgraded Adtran (NASDAQ: ADTN) to Overweight from Market Weight, citing increased wireless backhaul capex spending by Tier-1 carriers. The firm raised its target to $32 from $21.
• RBC Capital upgraded Brunswick (NYSE: BC) to Outperform from Sector Perform as the firm thinks the company no longer has liquidity risk and can generate significant profits by 2012. The firm set a $17 target on the stock.
• Bronco Drilling (NASDAQ: BRNC) was upgraded to Hold from Underperform at Jefferies.
• LSI Corp. (NYSE: LSI) was upgraded to Buy from Hold at Deutsche Bank.
• UBS upgraded U.S. Airways (NYSE: LCC) and UAL Corp. (NASDAQ: UAUA) to Buy from Neutral.

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.

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.

• Baird upgraded Nike (NYSE: NKE) to Outperform from Neutral on expectations the company will benefit from the drop in the U.S. dollar and continued solid trends in athletic footwear. The firm raised its target on shares to $69 from $61.
  
• Deutsche Bank upgraded Temple-Inland (NYSE: TIN) to Buy from Hold as it believes the company is well positioned for cyclical turnaround in the Paper/Building Products space. The firm raised its target on shares to $19 from $11.
  
• Goldman upgraded Diageo (NYSE: DEO) to Buy from Neutral to reflect the current valuation and the company's exposure to emerging markets.
• Deutsche Bank (NYSE: DB) was upgraded to Hold from Sell at ING Group.
  
• Banco Santander (NYSE: STD) was lifted to Buy from Hold at Deutsche Bank.
  
• Jackson Hewitt (NYSE: JTX) was upgraded at Oppenheimer to Outperform from Perform.

AMR Corp (NYSE: AMR) closed at $5.20. WTI Crude oil is recently up 1.57% to $67.16 according to Bloomberg. AMR July and November option implied volatility of 94 is below its 26-week average of 115, according to Track Data, suggesting decreasing price movement.

UAL Corp (NASDAQ: UAUA) closed at $5.29. UAUA July option implied volatility is at 102, December is at 111; below its 26-week average of 128, according to Track Data, suggesting decreasing price movement.

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

Airlines are still having a problem with the economy. Consumers aren't traveling as much, businesses are cutting back on sending executives across country. Indeed, I'm sure the summer months are going to see a lot of vacation plans being eliminated as people decide to stay closer to home.

• Citigroup upgraded Blue Nile (NASDAQ: NILE) shares to Buy from Hold on valuation following the recent sell-off as they believe weakening fundamentals have been factored into estimates and that Blue Nile should benefit from the recent softening of diamond prices. The firm raised its target price to $30 from $20.
  
• Baird upgraded AmSurg (NASDAQ: AMSG) to Outperform from Neutral based on valuation, potential upside from in-line results, good visibility, and FCF yield.
  
• Oppenheimer upgraded DryShips (NASDAQ: DRYS) to Perform from Underperform on valuation following the recent weakness and believes the company is at least halfway through its $500M equity offering.
• UAL Corp (NASDAQ: UAUA) was raised to Buy from Neutral at Banc of America/Merrill.
  
• Mylan (NASDAQ: MYL) was upgraded to Overweight from Equal Weight at Barclays.
  
• Exxon Mobil (NYSE: XOM) was lifted at Deutsche Bank to Buy from Hold.