Once upon a time, say three months ago, the airline industry was just about the most hated sector on Wall Street. Not only had investors run out of patience with the group, but their customers had as well. Prices were rising and capacity was falling.

What once was a rather enjoyable endeavor (flying) has become something most people do out of necessity and then only grudgingly. I’ve seen happier people walking into the dentist’s office for a root canal than I have standing in the security line at the airport.

The airline industry has been a mess for many years since deregulation.  A dinosaur does not die easily, and in the case of airlines the death rattle has lasted quite some time.

A few short years ago many carriers reached the brink of bankruptcy with some actual failures.  Out of that crisis firms extracted cuts from labor and significant cost reductions that positioned the airline group for future profits.

Unfortunately, as the recovery in the sector was taking hold, oil prices rose beyond what anyone could have expected.  Even those that hedged their fuel purchases saw profit margins pressured greatly.

Almost perfectly inversely correlated to the rise in oil, shares of airline stocks fell precipitously.  The industry found itself in another crisis.  Even worse, the economy in the United States at that time was slowing causing demand for flights to drop.

It was a perfect storm against the group, but then again it has always been a perfect storm against airlines.  When will they ever learn?

This time around the solutions include more pressure on the unions to cut costs and mergers between carriers.  We have seen Northwest (NWA) and Delta (DAL) join together in hopes of surviving the current crisis.  Airline stocks looked to be some of the biggest losers in 2008.

Interestingly, demand for seats have held firm even as the economy slowed.  As such many carriers are now charging extra fees for baggage, food and other niceties, like pillows and blankets, on flights.  In addition, they added fuel surcharges to help offset rising fuel costs.

These surcharges are met with little resistance.  Apparently, cut-throat competition has resulted in more balance on the supply side of the equation making it easier to push through these price increases.

With that, the ingredients are in place for a nice recovery.  All that is needed now is oil prices to moderate.

That is indeed is what is happening, and with the turn airline stocks have become some of the best performers since mid-July.  Of course, such movement is only a partial recovery of lost gains, but it beats the alternative.

Take United Airlines (UAUA), for example.  This stock started the year in the mid-$30s.  By the time oil peaked in July, the stock had fallen to below $3.  What a blood bath.

As is usually the case—when the carnage was at its worst the buying opportunity was ripe.  Buy when there is blood in the street, and there was certainly blood in the street here.  With many predicting oil prices rising to infinity, there could be no way that the airline industry in its current form would survive.

Correct?  Wrong.

Well sort of.  Crude at $200 or higher may very well have been the end of the rope for the group as we know it.  Fortunately, the speculative bubble in crude burst before we came close to those levels.

With the pricking of the oil bubble, stocks of airline carriers rebounded.  The bounce has been most impressive.  UAUA quadrupled in value from its lows.   The stock now trades for over $12 per share.

Shares of other airlines, including American (AMR), US Air (LCC) and Delta (DAL), show similar recovery.  One of the big drivers in the performance is the complete reversal in predictions for oil prices.

The fear of unlimited increases in oil is no longer valid.  The good news for investors is that prior surcharges are sticking.  That means profit margins will be larger than they were when oil was previously at these levels.

As I have stated before, once a company raises prices, it is always more difficult to lower prices.  That effect is magnified with airlines.  With minimal competition, airlines have more latitude to operate without being pressured into lower prices.

Finally, we may very well have a new landscape in airlines, and that landscape should be very positive for investors.   Will the new landscape mean consistent and stable profits for the carriers?

I think so.  While I would have preferred owning the stocks of airlines at the lower prices, they are still well off previous levels.  With oil prices falling further in my opinion, investors would do well to add the group to a diversified portfolio.

This article was written by Jamie Dlugosch, editor, InvestorPlace.com. For more actionable insights likes this, visit www.InvestorPlace.com.