BOSTON (TheStreet) -- The announced merger between Continental (CAL) - Get Report and United Airlines' parent UAL( UAUA) has thrown the airline industry into the spotlight.

Traditional names such as

AMR's

(AMR)

American Airlines,

US Airways

(LCC)

,

Delta Air Lines

(DAL) - Get Report

, Continental and United have been beaten up badly in recent years with debt woes and skyrocketing fuel costs hurting profits. Despite the cost savings and competitive advantages mergers offer, expect newer companies such as

Southwest

(LUV) - Get Report

and

JetBlue Airways

(JBLU) - Get Report

to be the strongest investments going forward.

Long gone are the golden days of air travel, when a regulated market fixed fares at levels that were too expensive for many people and forced airlines to compete with service rather than prices. Now that consumers have become accustomed to cheap flights, traditional carriers must cut other expenses to stay profitable in the face of low-cost competition from Southwest and JetBlue.

The differences in these airlines is incredibly obvious with just a quick glance at the airlines' debt-to-equity ratios. American, US Airways and United carry negative equity positions, while Delta carries a shockingly high debt-to-equity ratio of 614.82 while Continental is still high at 25.8. By comparison, JetBlue's 3.3 and Southwest's 1.6 look minuscule, even though those ratios would be high in most industries. For example,

Microsoft's

(MSFT) - Get Report

debt-to-equity ratio is 0.86,

Apple's

(AAPL) - Get Report

is 0.45 and

3M's

(MMM) - Get Report

is 1.1.

During the past year, United's stock has nearly tripled and those of Delta, Continental and US Airways have increased 59%, 33% and 24%, respectively. While these stocks appear to be creating value, they're rebounding from the low hit during the depths of the recession. According to the Bureau of Transportation Statistics, passenger volume decreased by 5.3% in 2009 thanks to the weak economy. While travel will increase this year as the economy improves and people take vacations again, the industry is still going to face a tough battle in the coming quarters to win business. Because of that, companies will less debt will be better able to weather potentially unsteady passenger volume.

Based on domestic flights, Southwest is the biggest airline in the country based on emplaned passenger volume. JetBlue is the ninth-biggest carrier, which is impressive considering how much smaller its operation is compared with those of larger rivals. When international flights are factored in, American Airlines is slightly bigger than Southwest, but JetBlue and Southwest are much more profitable that the major carriers.

Southwest was the only company to post a positive return on equity during the year through March 31, even though it was minuscule at just 3.8%.

The industry looks attractive based on price-to-earnings and free cash flow ratios, but the companies that are part of that average are so weak that an investment in an exchange traded fund such as the

Claymore/NYSE Arca Airline Fund

(FAA)

would be highly risky.

For investors looking for exposure to the industry, Southwest's profits and relatively small debt make it the best bet.

The industry looks weak. While the merger between Continental and United may create synergies for the combined company, it will hurt the competitiveness of the industry. Avoid these stocks if you can. Pick Southwest if you can't.

-- Reported by David MacDougall in Boston.

Prior to joining TheStreet Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.