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.

Delta Air Lines Inc. (DAL) said Thursday that it was one step closer to completing its merger with Northwest Airlines, which will create the world's largest air line by passenger traffic.

The two carriers received Federal Aviation Administration (FAA) authorization to operate as a single carrier. They can now fully combine flight numbers, schedules and ticketing under the Delta name. The air lines have already integrated many operating procedures, including the use common technical manuals.

The fact that there hasn't been any action in a while doesn't mean there isn't room for more. Richard Anderson, CEO of Delta Airlines (DAL), says that the airline industry could consolidate further -- not exactly a shock in an industry that is known for universal financial suffering. He notes, "If a transaction were to occur, economics should prevail."

The only concern, of course, is whether the Obama administration would sign off on any future deals. Anderson believes, "I think the case can be made ultimately, but it remains to be seen what this administration's take will be."

This constitutes multiple 'rays of light:' United Airlines (UAUA) Tuesday announced that it would acquire 50 new planes. Twenty five are The Boeing Company (BA) 787 Dreamliners and twenty five Airbus A350 XWBs -- widebody planes with a list price of $9 billion, CNNMoney.com reported.

And Wednesday Delta Air Lines Inc. (DAL) and United indicated that business travel is improving and that the worst of the travel demand slump was over, Bloomberg News reported.

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.

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.

Late Monday, Delta Air Lines (NYSE: DAL) announced it raised $600 million in cash and refinanced $1.5 billion in debt in order to help strengthen its liquidity position in 2010. DAL now believes its unrestricted cash balance will be $5.6 billion at the end of the quarter, adding that its refinancing has now addressed more than 40% of next year's loan maturities. The airliner stated that its refinancing has now addressed more than 40% of next year's loan maturities.

Strengthening liquidity is a smart move as it can help the airline conquer some of its technical hurdles. DAL is enjoying a bit of a rally thus far in the calendar year (after starting 2009 with a sharp drop), but I am a bit concerned about its current battle with the $10 level. This round-number level has acted as resistance during the past two weeks, and it could continue in this role. The shares could overcome this resistance with some help from its 10-week and 10-day moving averages.

United Airlines (NASDAQ: UAUA), US Airways (NYSE: LCC) and American Airlines (NYSE: AMR), according to an influential analyst, have run out of options. Jamie Baker of JPMorgan said in a July 20, 2009 report that these companies couldn't do anything to prevent a cash crisis. They only savior available to them would have to be an outside investor. To call the position grim would be optimistic. Unfortunately, it couldn't have come at a worse time.

As Baker was walking the bear into the airline industry, United was starting to celebrate its change in direction. The carrier has improved its on-time rate, according to a USA Today report, and its operations are coming around. Despite the fact that the airline industry has been brutalized by the global recession, the airline has made some progress. Through August, the company's share price doubled, and its ascent has continued in September. So, the company is locked in an ongoing struggle to manage its identity, cope with its past and shape how the world sees it today.

The operational "makeover" has resulted in a reduction of its fleet from 601 jets in 2000 to 386 as of the summer of 2009. In terms of passenger traffic, it's in the #4 spot in the United States – trailing Delta (NYSE: DAL), Southwest (NYSE: LUV) and American. With Q2 revenues off 25.2% year-over-year, however, drastic measures are still necessary.

Delta Air Lines (NYSE: DAL) was on the upswing Monday after the firm raised its forecast for third-quarter margins. The airline issue now expects operating margin of 3% to 4% for the current quarter, compared to its midsummer outlook of 1% to 3%. Third-quarter fuel prices are now expected to average $2.14 per gallon, down from a prior prediction of $2.17.

The update comes courtesy of a regulatory filing, wherein Delta noted that many of its financial metrics are improving on both a sequential and a year-over-year basis. Load factor for September and October is pegged at 82%, narrowly above last year's level. Meanwhile, revenue per available seat mile is expected to decline in the third quarter, but less so than in the second quarter.

Japan Airlines (OTC: JALSY) gained 8% Monday morning, thanks to weekend rumors that Delta Airlines (NYSE: DAL) and American Airlines (NYSE: AMR) are vying for a piece of the largest airline in Asia's largest travel market. Both Delta and American hope to use an investment in JAL to gain broader access to the Japanese travel market.

Though JAL refuses to comment on any talks, it's been reported over the weekend that Delta could be interested in buying a minority stake in the airline for several hundred million dollars, while American's bid could be $1 billion or more for a joint venture. At the same time, JAL has mentioned wanting to raise a total of $2.8 billion.

Delta Airlines (NYSE: DAL) is looking to buy a piece of Japan Airlines (OTC: JALSY). The move could give the world's largest airline access to more cities in Japan.

A source close to the talks says that the investment would be several hundred million dollars and would open the door for an alliance between the two that would allow each airline to book passengers on the other's flights.

August brought more misery to the airline industry in the United States. Seven of the country's nine largest carriers saw traffic drop, with only Southwest Airlines (NYSE: LUV) and JetBlue Airways Corp (NASDAQ: JBLU) bucking the trend. The continued upward climb of unemployment, tighter corporate budgets and sluggish demand for leisure travel has resulted in fewer passengers in seats.

JetBue was the only carrier not to report a drop in available seat miles (ASMs), the primary measure of airline productivity. Load factors, however, which indicate how full a plane is, tended to be higher, largely a result of flights that have been cut in an effort to reduce costs.

There may be new hope for the perpetually ailing airline industry. While I wouldn't expect these companies to become top performers anytime soon, it looks like the best revenue stream is the one nobody's been talking about: change and cancellation fees.

These penalties, which can reach up to $150, bring $2 billion in revenue into the industry annually. According to the Department of Transportation, they were good for $527.6 million in the first quarter -- in the United States alone. This is 3.2% of U.S. airline revenue.

American Airlines parent AMR (NYSE: AMR) raked in $116 million in revenue from these penalties in the first quarter of 2009 -- compared to $108 million from the more highly publicized extra bag fees. For JetBlue (NASDAQ: JBLU), the numbers are smaller (JetBlue, of course, isn't as big as AMR) but no less compelling. By pumping its change and cancellation fee from $100 to $150, the airline scored $32.2 million in Q1 2009, up from $25 million in Q1 2008.

I take my absolute return approach to a deeper level by periodically buying and selling positions during the year. In late February, I suggested that investors cover the short position of Delta Airlines (NYSE: DAL) at $6.35 per share.

In my last update of the stocks on this list, I suggested that I would still be a seller of Delta. Shares of Delta did indeed lose value over the last three months. This move coincided with a blast in oil prices. Airlines are already struggling with a weak economy and excess capacity. Rising jet fuel prices make matters worse.