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Editor's note: With the merger of Delta Air Lines (DAL) - Get Free Report and Northwest Airlinesundefined back in the news, a three-part series on investing in airlines, which was originally published on RealMoney earlier this month, is being republished as a bonus for readers of

The airline sector has proven to be very volatile for investors. Surging oil prices sent many shares down to multiyear lows, as investors fretted with the possibility of one or two major bankruptcies. Oil's sharp pullback from the July peak has led to a rally in the sector. If oil falls further, these carriers could continue their recent ascent. But if the economy falls into recession, the carriers will have a new set of headaches to deal with.

-- David Sterman, Sept. 28, 2008

Part 1

From Airlines in Transition: Industry Pressures and Responses:

Although the airline sector has pushed through a range of price increases, oil prices have risen even faster. As a result, the five major carriers are on track to lose more than $3 billion in 2008.

The carriers have been slow to respond to the changing market, and actually added an aggregate 1% in new available seats this year, compared to a year ago. That net increase and the slowing market has led to many planes that are less than full, typically with about 79% of seats filled.

In years past, an occupancy rate above 70% ensured a profitable flight. Nowadays, with fuel oil priced far higher than in the past, that figure is closer to 85%.

Read the full article.

Part 2

From Airlines in Transition: The Most Vulnerable Players:

So where do the carriers stand in terms of their cash balances and burn rates? We can dispense straight away with a discussion of the one cash-rich operator in the industry:

Southwest Airlines

(LUV) - Get Free Report

. The carrier ended the June quarter with more than $5.8 billion in cash. As I'll note in my third piece, Southwest is likely to use that heap of money as a key competitive advantage.

Just about every other domestic carrier is in a state of financial distress. So it is instructive to look at their current cash balances and their sensitivity to oil prices.

Even after a recent equity infusion,

U.S. Airways


is clearly the most troubled carrier.

Read the full article.

Part 3

From Airlines in Transition: The Healthiest Players:

More aggressive investors may want to give a fresh look at


(JBLU) - Get Free Report

, which has established very strong brand equity and a low-cost structure, even though the carrier is now experiencing significant growing pains... Although the initial euphoria over JetBlue has clearly passed, the carriers' second act could be equally impressive.

Read the full article.

David Sterman has been an equity analyst and financial journalist for 15 years, most recently serving as Director of Research at Jesup & Lamont Securities.