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.

Monday, United Airlines (UAUA) announced that its December traffic matched last year's traffic, but that planes were more crowded. Confused? UAUA had fewer flights this year compared to a year ago, so matching traffic from last year meant that the planes had more passengers.

The air carrier announced that paying passengers flew 9.21 billion miles last month and capacity shrank to 11.24 billion available seat miles from 11.60 billion in December 2008. All this totaled up to average occupancy of 81.9%, up from 79.4% a year earlier. Average occupancy for the year increased to 81.2% from 80.4%. Taking regional operations out of the equation, average occupancy on UAUA flights came in at 83%, up from 79.9% in the prior year.

Alaska Air (ALK) closed at $35.83. ALK January call option implied volatility is at 35, puts at 40, February calls are at 39, puts at 45; below its 26-week average of 53, according to Track Data, suggesting decreasing price movement.

UAL Corp (UAUA) closed at $12.93. WTI Crude oil futures are recently up 0.40% to $74.70, according to Bloomberg. UAUA January option implied volatility is at 83, February is at 82; below its six-month average of 94, according to Track Data, suggesting decreasing price movement.

CBOE Volatility Index (VIX) at 19.54; 10-day moving average is 21.39.

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

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."

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.

Here are some highlights from last week's earnings coverage from BloggingStocks:

• Altria Group Inc. (NYSE: MO) Q3 earnings beat by a penny but sales fell short of expectations; shares fell.
• AMR Corp. (NYSE: AMR) reported a Q3 net loss and plunging revenue but also raised $4 billion in cash.
• BB&T Corp. (NYSE: BBT) topped Q3 earnings expectations but said bad-loan provisions nearly doubled.
• Boeing Co. (NYSE: BA) missed estimates and posted a Q3 loss due to delays for a couple of jet products.
• Capital One Financial Corp. (NYSE: COF) shares rose after it reported better-than-expected Q3 numbers.
• Coca-Cola Co. (NYSE: KO) posted a better-than-expected Q3 profit but sales fell short, and shares fell.

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."

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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.