Talk about a rough ride: The nation’s nine major airlines lost -$671 million in the second quarter.

We’ve all heard plenty of talk about how no one is flying anymore. Maybe it feels that way, but the airlines are still bringing in plenty of revenue. The total top line for the nation’s nine major carriers was $25.7 billion last quarter (See chart below). That was an -11% drop from a year ago and -7.6% less than the second-quarter average during the past four years.

Airline	Revenue	Net Profit
American (AMR)	$4.9 billion	-$390 million
Delta (DAR)	$7.0 billion	-$257 million
Alaska Air (ALK)	$844 million	$29 million
U.S. Air (LCC)	$2.7 billion	$58 million
United (UAUA)	$4.0 billion	$28 million
Continental (CAL)	$2.9 billion	-$213 million
Southwest (LUV)	$2.6 billion	$54 million
JetBlue (JBLU)	$807 million	$20 million
TOTAL	$25.7 billion	-$671 million

That’s not a pleasant trend, but it’s a long way beyond catastrophic.

Even so, investors have been heading for the exits. And why shouldn’t they? Airlines, as a whole, have never made any money.

Since 1978, more than 180 airlines have declared bankruptcy, including the iconic Pan-Am and TWA, neither of which flies anymore. Continental (NYSE: CAL), U.S. Airways (NYSE: LCC) and Delta (NYSE: DAR) are still operating, but each has reorganized.

Warren Buffett once said that if a true capitalist had been present at Kitty Hawk, he would have shot Orville down.

One reason it’s so hard to make a go in the airline business is that the business requires a ton of capital. All airlines are awash in debt. The nine major carriers owe $110 billion. This mountain of red ink is backed up with only $136 billion in assets. Total equity only adds up to some $3 billion. Three carriers — American (NYSE: AMR), United (Nasdaq: UAUA) and U.S. Airways — actually have negative shareholder equity, meaning they owe more than the value of their assets.

Down -50% and Still Overvalued
The airline sector has lost half its market cap since January. The biggest loser has been United parent UAL Corp., with a -64% loss. Southwest has had the best year, but even turning a profit hasn’t done much to reassure investors, and its shares are down -13% for the year.

#-ad_banner-#Yet even with that massive second-quarter loss, the mountain of debt and share prices in the toilet, the airlines are still very richly valued.

The $17.4 billion total market cap of the nine top airlines is 5.4 times their net assets. That’s just nuts. The average S&P 500 company — which is less leveraged, has a higher profit margin and is actually profitable — trades at just 2.1 times net assets. This underscores a unique trait of the airlines: They seem to defy fundamental analysis.

The Only Thing Keeping the Airlines in Business
Just as the airlines seem to be on their last leg, a recovery may well save them — not necessarily by filling up planes with more passengers, but by bringing in more revenue selling high-priced, high-margin seats in first and business class. In the meantime, the only saving grace for the industry is that the price of fuel, which accounts for about 40% of airline costs, has fallen.

But can the industry’s largest players continue to burn through cash while they wait for the economy to recover? Delta and American lost $650 million between them last quarter — that’s $300,000 an hour.

Though the airlines have a mountain of debt, they’re doing a good job of servicing it. They all have plenty of cash on hand. The most vulnerable is American, which given its current rate of losses, will run out of cash in precisely 7.6 quarters. By that time a rebound will likely have saved the day. Delta and Continental could burn cash even longer, and even one profitable quarter might extend that lifeline for years.

What Investors Must Remember
The lesson here is that neither fundamental analysis nor conventional wisdom is a sound basis for investing in airlines. The airlines’ balance sheets look lousy. From an asset basis, their stocks seem overvalued. And earnings are either nonexistent or spotty even in the best of times.

Airline shares are wholly unsuitable for individual investors, even those with a strong stomach for risk. The risk/return picture is just too cloudy. Don’t put your money in airlines — and don’t let too many frequent-flier miles accumulate, either.

The Best Way to Profit from Air Traffic
One of the reasons airlines don’t make any money is because there are too many players. That’s why airlines have price wars. Airports, however, don’t. Airports are a monopoly business. While the airlines that fly into and out of these airports usually lose money, the airports where they land are guaranteed to make money. And a few of these airports, mostly in other countries, are privately held.

Among the best in this class: Grupo Aeroportuario del Pacifico (NYSE: PAC), which owns 12 airports in Mexico, and Grupo Aeroportuario del Sureste (NYSE: ASR), which owns nine. Each gets paid a fee whenever a plane lands at one of its facilities, and each also pays a sweet dividend to shareholders — something no major U.S. airline does. Both stocks are worth a closer look, and I’ll bring you a closer look at these compelling monopolies in the coming weeks.