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By Steven Edwards

The airline industry as a whole has been operating at a deficit since the Wright brothers. Almost all the major airlines have gone bankrupt, including American Airlines currently. No less an investor than Warren Buffett has warned against ever buying shares in an airline. But some airlines do manage to make money, because they have a regional advantage or a strategy that makes sense. With summer travel season coming up, the economy slowly recovering, and the price of oil (and therefore jet fuel) dropping like a rock, maybe it is time to consider some airlines to add to your portfolio. Here are three to consider.

Southwest Airlines (LUV)

Despite its name, Southwest travels all over the United States. It is winning some love from passengers for its commercials that tweak other airlines for their added baggage fees, which Southwest doesn't charge.

Last year, Southwest acquired AirTran, a regional airline operating out of Atlanta. The acquisition left Southwest with some extra airliners, some of which it has leased to Delta (DAL). The excess planes also allowed it to defer an order for thirty 737-800s from Boeing (BA), which will save it about $1 billion in capital spending for the present. CEO Gary Kelly promised that the company would not increase its capex until it reached its return on capital targets.

Analysts expect Southwest to earn $0.70 this year and over $1.00 next year. It is currently trading at less than $9.00 per share. Given its long-term growth rate of 19% annually, that doesn't seem too rich.

Southwest showed confidence in its future earnings by more than doubling its quarterly dividend lately - all the way up to a penny per share. If that seems like a ridiculously low dividend, you should realize that Southwest is the ONLY listed airline paying any dividend. Of course, that still doesn't make it a dividend play. The company's board also doubled its share repurchase plan to $1 billion, which is probably the more significant action.

One potential downside is that part of Southwest's success has historically resulted from its fuel hedging strategy. That's a great idea when the price of fuel is going up, but may result in overpayment for fuel in the current environment, when the recession in Europe is causing fuel prices to plummet.

Allegiant Travel (ALGT)

Allegiant is probably less familiar to most folks. It runs a passenger airline geared to leisure travel that services 64 smaller cities in the U.S. that the major airlines tend to ignore (Wal-Mart got its start by concentrating on markets that other retailers ignored). In some cases, the company bundles third party goods and services with its tickets, things like hotel rooms and theater tickets. It also provides charter air services. Allegiant's whole strategy differs markedly from that of most of the industry, which is oriented toward the business traveler.

Allegiant's earnings per share have grown at a rate of 38% over the last 5 years in an industry that's generally losing money. So it must be doing something right. Recently, the company announced that it is adding flights to Hawaii from places like Stockton, CA and Eugene, OR. These should add significantly to its passenger miles flown. The drop in fuel prices may aid Allegiant preferentially, since it flies an older, less fuel efficient fleet than most airlines. Analysts expect Allegiant to earn $3.81 this year and $4.95 next year. The company has surprised to the upside on earnings and revenues for five of the last five quarters.

Spirit Airlines (SAVE)

Having traveled on Spirit's planes to Costa Rica and back, I can attest to the fact that they are crowded and uncomfortable. Nevertheless, this is my favorite airline pick. The reason lies in the routes that it flies. It has major hubs in southern Florida that funnel North American passengers to Mexico, the Caribbean, and South America, and also serve Latin Americans going the other way. It's a direct flight for the Columbian drug lord in Medellin to reach his vacation condo in Miami. Though located in a nominally English-speaking country, Miami is the center of the Spanish-speaking world. This company is not just one of the rare profitable airlines, but is a play on the emerging economies of South and Central America. Naturally, its website comes in English and Spanish versions.

Spirit's ticker symbol is emblematic of its generally low air fares. On the other hand, it is quite willing to nickel-and-dime its passengers to death with baggage fees, change fees, costs for food and drink, etc. In a recent press release, the company offered $9 fares to the moon, but there were extra charges involved: $1 million for a space suit, $2 million for an oxygen mask. The April Fool's joke showed that the company was not afraid to play on its own stingy reputation; obviously, its customers like the low fees well enough not to complain.

The company is expected to earn $1.91 per share this year and $2.41 the next year, and its current share price is $20 and change. Of 12 analysts, six have it rated a buy and six have it rated as an outperform. As for me, it's six of one, half a dozen of the other.

Source: Don't Listen To Buffett, Invest In These 3 Airlines