What's holding the airline sector back, in addition to high jet fuel prices, and keeping the likes of AMR's (NYSE: AMR) American, Delta (NYSE: DAL), UAL's (NYSE: UAUA) United, Southwest (NYSE: LUV), and Continental Airlines (NYSE: CAL) from realizing their potential?

Many economists and analysts would agree that, along with other infrastructure and related investments, the nation's air traffic control system must be upgraded, if the United States seeks an air transportation system capable of maintaining a high level of safety -- and better service -- in the 21st century's more-crowded skies.

Further, that the United States has not already replaced an essentially generation-old air traffic control technology with a modern system is a serious demerit, and one that has -- through delays, cancellations, and other problems -- taken a toll on the flying public and the major carriers.

To date, the Bush Administration's plan to end gridlock on the runway has largely consisted of replacing a primarily flat-fee system (based on aircraft weight) for departure slots at airports with a market-based system: airlines would pay more to schedule flights at heavily congested times (for example, Mondays at 8 a.m.) than at other times (such as Wednesdays or Thursdays at 1 a.m.).

However, while some elements of market-based slotting will help, the nation's skies still won't be able to reduce mounting delays (absent a severe recession) until new air traffic control software has been installed. The Federal Aviation Administration has spent $3 billion on new air traffic control software, but the system is still years away from implementation.

Airline Sector/Travel Analysis: It seems the airline sector can't catch a break. A couple of quarters after its recovery started following the massive decline in travel following the September 11, 2001, terrorist attack, rising oil prices sent jet fuel costs to unprecedented levels. Next, globalization and the rise of emerging market airlines intensified competition for international travelers. Then long-planned new air traffic control software was delayed. Given the above, in addition to an already full domestic plate, one of the first tasks the new U.S. president will have to undertake is a redoubled effort to get next-generation air traffic control technology deployed, for the good of the flying public, airlines, and investors.

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The unemployment rate is a relatively modest 5.5%. But that's because companies have figured out how to convert full-time employees who have benefits like health care into part-time ones who lack benefits and whose hours can be cut back at will. This is a great deal for companies and a lousy one for workers. And it is ultimately bad for investors.

The New York Times reports that 3.7 million Americans have seen their full-time jobs cut to part-time ones -- the highest number on record (the government started keeping track of this over 50 years ago). This record joins a host of others we've seen this year: record gasoline prices (over $4 a gallon), record Federal budget deficits ($490 billion for 2009), record Federal borrowing ($9.8 trillion soon to hit $10.6 trillion), a record decline in housing prices (15.8%), and a record weak dollar (down 71% to $1.5757 since January 2001 when one euro bought 92 cents).

The newly minted part-time workers are largely Hispanic men. Specifically, the Times points out that 73% of those who were forced into part-time work from the spring of 2007 to the spring of 2008 were men and 35% percent were Hispanic. The industries with the most part-time jobs were construction (28%), retail (14%) and professional and business services (13%).

The Times brings the part-time statistics to life with interviews. Here are two:

• Marvin L. Zinn, a Walgreen (NYSE: WAG) clerk, got his pay cut $100, or 15%, every two weeks from $650 to $550 as his weekly hours have dropped from 44 to 37.5. So what? He's carrying $2,000 in credit card debt to buy food; he's deferred dental work; and he stopped going to church because he says he can't afford to drive there.
• Ron Temple, a baggage loader for UAL Corp. (NASDAQ: UAUA), earned more than $20 an hour, plus health and flight benefits until he decided to go part-time as the lesser of three evils after being offered the choice of a layoff or transfer to another city. His bi-weekly pay dropped $780, or 58%, from $1,350 to $570 and he gave up some benefits. Temple and his wife -- who makes $1,000 every two weeks at a cancer clinic -- struggle to make their $1,753 monthly mortgage payment -- they're running up credit card balances -- $2,700 so far. They don't go out to restaurants and they buy cheap generic groceries through a program at their church.

The beauty of this arrangement for companies is that they don't pay health care benefits to many of their part-time workers. The Times reports that in retail, for example, 16% receive health insurance through their employers, while over 50% of full-time retail workers are covered.

What does this mean for the economy and investors? The thing about having 70% of Gross Domestic Product (GDP) dependent on consumer spending is that economic growth in the U.S. can only happen if consumers keep spending more money. Consumers can only spend more money if they get paid more or they can borrow more. With housing prices down, people can't borrow more money from the equity in their homes. And with more people taking pay cuts, consumer spending has only one place to go.

That downward trajectory in consumer spending will mean that companies that depend on consumers will make less money. The Walt Disney Company (NYSE: DIS) announced Wednesday that while it made 62 cents a share -- beating estimates by two cents -- it forecast declining ad revenues at ABC and ESPN since automakers, consumer electronics and financial-services companies are cutting back. And these industries are cutting back ad spending because consumers have less to spend and the companies themselves are cratering under a pile of debt.

Declining fortunes for these companies means more layoffs and shifts from full-time to part-time employment. Since workers are the very consumers who drive U.S. GDP growth, we are at the beginning of a long cycle of hurting workers, shrinking profits, debt write-offs and declining prices of goods financed with debt. And until we can create a post-bubble economy, such painful economic adjustments will continue to be a natural part of how we adjust to debt-driven expansion.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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

• Amazon.com Inc. (NASDAQ: AMZN) net income nearly doubled, topping Wall Street estimates.
• American Express Co. (NYSE: AXP) Q2 earnings fell well short of analysts estimates on credit crisis.
• Amphenol Corp. (NYSE: APH) beat Q2 expectations and offered Q3 and full-year guidance.
• A.O. Smith Corp. (NYSE: AOS) beat Q2 earnings estimates and boosted its full-year guidance.
• Apple Inc. (NASDAQ: AAPL) beat Q3 estimates but offered lower-than-expected guidance.
• Bank of America Corp. (NYSE: BAC) Q2 earnings tumbled but still beat Wall Street expectations.
• Boeing Co. (NYSE: BA) Q2 results missed estimates but it reaffirmed its full-year guidance.
• Broadcom Corp. (NASDAQ: BRCM) crushed expectations but offered muted guidance.
• Caterpillar Inc. (NYSE: CAT) posted better-than-expected Q2 earnings and offered guidance.
• Ceragon Networks Ltd. (NASDAQ: CRNT) reported strong earnings on increased global demand.
• Charles Schwab Corp. (NASDAQ: SCHW) topped Q2 estimates on rises in new accounts and assets.
• CME Group Inc. (NYSE: CME) better-than-expected Q2 results lifted the share price from a 52-week low.
• Crocs Inc. (NASDAQ: CROX) revised its Q2 and full-year guidance downward on market conditions.
• EI DuPont de Nemours & Co. (NYSE: DD) Q2 results beat expectations due to strength in agriculture.
• Ericsson LM TEL Co. (NASDAQ: ERIC) Q2 profits tumbled due to costs of R&D and acquistions.
• E*Trade Corp. (NASDAQ: ETFC) had a bigger-than-expected Q2 loss on Fannie Mae (NYSE: FNM) losses.
• Ford Motor Co. (NYSE: F) posted a record quarterly loss, mostly one-time charges.

• Great Atlantic & Pacific Tea Co. (NYSE: GAP) narrowed its Q1 loss as sales increased.
• Hasbro Inc. (NYSE: HAS) posted strong Q2 results that beat analysts expectations.
• Hershey Co. (NYSE: HSY) posted strong Q2 results on price increases and production efficiencies.
• Intuitive Surgical Inc. (NASDAQ: ISRG) beat Q2 expectations with its 23th straight quarter of growth.
• Jefferies Group Inc. (NYSE: JEF) surprized Wall Street with a Q2 profit instead of a loss.
• Kimberly-Clark Corp. (NYSE: KMB) Q2 results matched expectations and guidance was in-line.
• LG Electronics Inc. saw Q2 earnings soar on strong sales of flat panel TVs and wireless handsets.
• McDonald's Corp. (NYSE: MCD) posted a stronger-than-expected Q2 profit but warned of price increases.
• Merck & Co., Inc. (NYSE: MRK) topped analysts' earnings expectations but offered no guidance.
• New York Times Co. (NYSE: NYT) beat Q2 profit estimates and upped the newstand price.
• PepsiCo Inc. (NYSE: PEP) reported strong Q2 results despite commodity price increases.
• Pfizer Inc. (NYSE: PFE) posted better-than-expected Q2 results and reaffirmed its full-year guidance.
• RadioShack Corp. (NYSE: RSH) Q2 earnings soared due to increased online sales.
• Resources Connection Inc. (NASDAQ: RECN) had better-than-expected results and bought back shares.
• St. Jude Medical Inc. (NYSE: STJ) Q2 results beat expectations and it raised its Q3 and full-year guidance.
• Tempur-Pedic International Inc. (NYSE: TPX) beat Q2 estimates and issued in-line guidance.
• Texas Instruments Inc. (NYSE: TXN) posted disappointing Q2 results due to decreased demand.
• UAL Corp. (NASDAQ: UAUA) posted better-than-expected results and announced job and fleet cuts.
• Vocus Inc. (NASDAQ: VOCS) posted it's 36th consecutive quarter of revenue growth.
• Wachovia Corp. (NYSE: WB) swung to a larger-than-expected loss in Q2 and slashed its dividend.
• Washington Mutual Inc. (NYSE: WM) reported a multi-billion-dollar loss on further write-downs.
• Yahoo! Inc. (NASDAQ: YHOO) disappointing Q2 results included only minimal revenue growth.

Upcoming quarterly reports to look for include Kraft Foods (NYSE: KFT), Verizon (NYSE: VZ), U.S. Steel (NYSE: X), Viacom (NYSE: VIA), Starbucks (NASDAQ: SBUX), Walt Disney (NYSE: DIS), Motorola (NYSE: MOT), and Exxon Mobil (NYSE: XOM).

Visit AOL Money & Finance for more earnings coverage.

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"Combined with the previously announced approximately $550 million raised from new transactions in the second and third quarters, the company will have increased its total cash balance by $1.7 billion and continues to have more than $3 billion in unencumbered hard assets," UAL said in a press release.

Like all airlines, United is getting pounded by record-high oil prices. The company also announced plans today to cut 7,000 jobs as it posted a whopping $2.73 billion loss in the second quarter. The pain is expected to continue for some time to come.

"The largest U.S. airlines will cut their fleets by at least 465 jets and eliminate about 26,000 jobs this year to stem losses," Bloomberg News said. "More reductions are possible as the slowing U.S. economy damps travel demand, analysts have said."

Airline stocks are like airline travel: best avoided unless absolutely necessary.

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The new way they are starting to combat the high costs of flying is by cutting back, or postponing long international flights, in particular flights that are in excess of 12 hours.

A few years back, when oil was still "cheap," long distance flights seemed to be the next big thing for airlines. The math definitely made sense. By offering travelers the chance to fly non-stop to their final destinations, airlines were able to tack on anywhere up to an extra 20% on their tickets, and consumers were ready and able to absorb the extra costs in exchange for the luxury of not having to make connections, endure long waits in airports for their connections, and have to wonder if their luggage would make it on time. Well, times have changed, and consumers are tightening their belts. Now there is a shift to lower-priced tickets, and consumers are willing to endure a bit of hardship in order to save a few dollars.

We have to look at it from the airlines point of view as well. With fuel prices going up, the math on long distance flights is just not adding up anymore. For flights that are in excess of 15 hours, airplanes use more fuel per mile per customer, but the added costs are not proportionate with the additional cost of the tickets. A losing situation all around. If you consider that airlines are having a tough time breaking even on their shorter flights, you start to see just how hard they are getting hit on the longer flights that they have been offering.

The solution? Simple: cut the long distance flights. This is the trend we are seeing now, and probably one that will expand as time goes on.

Let's look at a couple examples of what we are talking about:

• US Airways (NYSE: LCC) group gained approval last week to postpone the start of a 13 hour flight from Philadelphia to Beijing;
• Northwest (NYSE: NWA) was given permission last week to suspend its seven times a week cargo flight between the U.S. and China;
• Earlier this year United (NASDAQ: UAUA) was allowed to postpone flights from San-Fransisco to China;
• Thai Airways International has decided to put an end to its 17-hour Bangkok-New York route, and reduce Bangkok-Los Angeles flights. This move will result in Thai selling its Airbus super-long-haul jetliners.

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MOST NOTEWORTHY: Concur Tech, Groupe Danone and General Motors were today's noteworthy downgrades:

• Piper downgraded shares of Concur Tech (NASDAQ: CNQR) to Neutral from Buy after transferring analyst coverage, as they believe potential upside to estimates is priced into shares while competitive concerns from American Express (NYSE: AXP) are not.
  
• Morgan Stanley downgraded shares of Groupe Danone (OTC: GDNNY) to Equal Weight from Overweight to reflect reduced visibility in the company's core business.
  
• Merrill downgraded General Motors (NYSE: GM) to Underperform from Buy citing the company's deteriorating US auto sales, resulting in a higher cash burn, which could result in a larger than expected capital raise. The firm believes GM capital raise could be in the range of $15 billion and notes that bankruptcy is "not impossible."

OTHER DOWNGRADES:

• Progenics Pharma (NASDAQ: PGNX) was lowered to Underperform from Market Perform at Friedman Billings.
  
• UAL Corp. (NASDAQ: UAUA) was cut to Neutral from Buy at Goldman.
  
• Lehman downgraded Apria Healthcare (NYSE: AHG) to Underweight from Equal Weight at Lincare Holdings (NASDAQ: LNCR) to Equal Weight from Overweight.

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Brand-Name Stocks Uner $10: Buyer Beware
These well-known names in the bargain bin may look appealing, but experts advise laying off until their earnings picture is clear. Among the stocks to be weary of are Sprint Nextel, Motorola, Ford Motor, Qwest, Washington Mutual, Northwest Airlines, Del Monte, Rite Aid, Chico's, Crocs, United Airlines, Palm, Sealy, Blockbuster, Circuit City and Orbitz.
Brand-Name Stocks Under $10: Buyer Beware

How to Play the Market in the Second Half of 2008
Market pro Todd Harrison discusses the top 10 themes for the rest of the year.
Where we are and where we're going: 10 market themes - MarketWatch

Finding Safety in a Bear Market
Here are five ways to protect your portfolio.
Keeping Your Balance in a Scary Market - Kiplinger.com

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Dream Retirement Home Bargain Cities
The housing downturn's upside? You don't have to go overseas anymore for your dream retirement home. Here are the six best markets for deals. They include Miami, Las Vegas, Phoenix, San Diego, Tampa and Denver.
6 real estate bargains - FORTUNE
Also: Housing Prices Will Get Worst in Hard Hit Cities

'Please, I Need Money. Can You Help Me?'
In these tough times, friends may need financial assistance. When should you say yes and when should you walk away?
What to do when you're asked for financial help - Bankrate.com

One Family: In Search of a Simpler Life
Five years ago, Kathy & Josh Gunns ditched the corporate world for the family farm. They love their new life, but did it simplify their finances? Not by a long shot.
One family: In search of a simpler life - Money Magazine

World's Most Powerful Tween Stars
These tween stars earned the most money - and the most buzz - over the last year. Topping the list is 'Hannah Montana' herself Miley Cyrus followed by 'Harry Potter' Daniel Radcliffe, the Jonas Brothers, Zac Efron and Ashley Tisdale.
The World's Most Powerful Tween Stars - Forbes.com

World's Most Powerful Actors
According to Forbes' Johnny Depp is the most powerful actor in the world today. He tops Brad Pitt, Will Smith, Jerry Seinfeld and Bruce Willis.
In Pictures: The World's Most Powerful Actors - Forbes.com

World's Most Powerful Actresses
According to Forbes' Angelina Joie is the most powerful actress in the world today. She tops Cameron Diaz, Jennifer Aniston, Keira Knightly and Jennifer Lopez.
In Pictures: The World's Most Powerful Actresses - Forbes.com

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22 Mid-Cap Marvels
These top-ranked dividend-paying stocks are also expected by S&P analysts to rise in price during the next 12 months.
Smart Dividend Plays: 22 Mid-Cap Marvels - BusinessWeek

The Rock Star of Money
The world's richest man is having an E.F. Hutton moment. Warren Buffett, dubbed the Oracle of Omaha by Wall Street, is making his voice heard these days. The billionaire investor is out talking to cable TV anchors. To magazines. To shareholders. To Congress. To foreign investors. To a former Wall Street analyst who is writing a book about him. He's even popped up in a CNBC documentary, The Billionaire Next Door: All Access, which delves into all things Buffett. Not to mention a recent guest appearance on the daytime soap opera All My Children. People are really listening to what Buffett has to say more than ever.
Warren Buffett hones rock-star status - USATODAY.com

Wal-Mart, Your Friendly Drugstore
The retailing juggernaut is set to move more aggressively into pharmaceuticals and health care, much as it did with groceries 20 years ago.
Wal-Mart, Your Friendly Drugstore - BusinessWeek

America's Most Time-Draining Airports
Flight delays are a summer travel nightmare. These airports have the worst waits. Topping the list is Chicago's O'Hare which is the nation's worst. In three categories: late aircraft, air traffic control and cancellations it ranked last out of 100 airports. To translate that into time lost, O'Hare flights in 2007 were delayed by a cumulative total of 2.5 million minutes due to a late aircraft.
America's Most Time-Draining Airports - Forbes.com
20 Worst Airports for Delays

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United (NASDAQ:UAUA) is up 3% on news that it cut staff and capacity.

IDT (NYSE:IDT) is off over 20% on poor earnings.

Nuance (NASDAQ:NUAN) is off almost 4% on word that it will sell 5.6 million new shares.

Ambac (NYSE:ABK) is up 2% after a huge sell-off yesterday on word it may be downgraded by Moody's

Stocks may trade differently in the pre-market than they do the regular session.

Douglas A. McIntyre is an editor at 247wallst.com.

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