It's amazing how sometimes investors can get so fixated on one thing that they miss the important things. This time, it was the airlines.

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Between the ash cloud intermittently shutting down Europe's airways and the buzz about the merger between Continental Airlines (NYSE:CAL) and UAL Corp. (Nasdaq:UAUA) subsidiary United Airlines - and the impact it may have on Delta Air Lines (NYSE:DAL) - two key points were lost in the shuffle.

Major Airline Uncertainty
The current-year forecasts look amazing, with single-digit P/E ratios on the menu for Delta, United and Continental. If the anticipated numbers are on target, then airline stocks really are the market's best bets right now. But, that's a big "if".

Don't get me wrong. The stats confirm that airline traffic is getting better; the Air Transport Association announced a 12.5% increase in passenger fares for April - the fourth monthly increase in a row. But will that actually lead airlines to the stunning earnings analysts are expecting? That's where I have my doubts.

Just for perspective, UAL Corp. is expected to earn $3.83 per share, significantly more than the losses it experienced previously. In 2009, UAL had a loss in earnings per share of 7.71. And although the last two quarters have shown a remarkable turnaround, consistency in the figures is contingent on ongoing market prosperity.

Delta's aggressive thinking is on the revenue front. Analysts are expecting a 12% increase in revenues in 2010 to lead the company from last year's per-share loss of $1.29 to a gain of $1.70 in 2010.

Costs have been cut to the bare-bone minimum, and passenger count increases aren't just a myth. The enthusiastic numbers, however, just don't quite seem to jive when it comes to believability. With the correction in the market, estimates in all industries might have to be readjusted.

Disasters? No. Recipe for disappointment? Yes. There is some good news from the airline industry though.

Regionals Aren't Winning
You own a stock for where it's going - not for where it's been. From that perspective, the major airlines are back to looking attractive. At the same time though, if a company is already "there" in terms of profitability, then comparative risks are like night and day. And many of the regional airlines appear to be in just that situation.

While it wouldn't be accurate to say they all survived the recession with flying colors, it would also be inaccurate to say there's not a noticeable fundamental difference between Delta, United and Continental, and say SkyWest (Nasdaq:SKYW), Alaska Air (NYSE:ALK) and AirTran Holding (NYSE:AAI). Each of those smaller airlines - like their bigger brothers - is also carrying small P/E ratios for 2010. The only difference is that those three airlines were profitable through the 2009 downturn.

The Bottom Line
If you're looking to make a play on the revival of air travel, the smaller fish in the sea have proven they can turn a profit even when things are tough - just think how they'd do when times are decent. (Break through the clouds to see if these stocks will rocket higher, or crash and burn. For further reading see Is That Airline Ready For Lift-Off?)

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