The U.S. airline industry just can't catch a break.

Major carriers are finally posting profits after flirting for five years with financial ruin. But share prices appear unable to reverse the slow march downward.

Some investors and analysts are calling for airlines to boost share prices by selling ancillary divisions like frequent flyer and aircraft maintenance businesses. Others want mergers.

And still others say spinoffs would, in fact, pave the way to consolidation, a complicated step but one that experts agree is needed to stabilize the embattled airline industry.

These various spinoff concepts potentially have the ability to facilitate mergers, said Stuart Klaskin at KKC Aviation Consulting.

One can make the argument that if airlines can free themselves of non-core assets, there is less to merge.

The subjects of spinoffs and consolidation have returned to prominence as even airline executives batted around the possibilities on conference calls with analysts following quarterly earnings reports last month.

AMR Corp Chief Executive Gerard Arpey said on a call that AMR has considered selling its American Eagle subsidiary, its investment advisory unit, its maintenance business and its frequent flyer program.

I think we're giving it the appropriate consideration, Arpey told an analyst, who asked when a decision on asset sales would be made. Arpey declined to provide that information.

With respect to consolidation, the biggest question I think we've acknowledged (is) that we understand the fragmentation in this industry and the challenges that fragmentation has caused the industry, he said.

Experts say there are too many major U.S. carriers mergers would pull excess capacity out of the air traffic system, enabling airlines to charge higher ticket prices.

INVESTOR GETS NOISY

AMR has been under increasing pressure to bolster share prices since September when FL Group, an Icelandic private equity group that owns 9.1 percent of AMR, called on the company to consider spinning off its frequent flyer program.

I'm aware of much of the dialogue that's going on, FL Group Chief Executive Hannes Smarason told Reuters.

It seems that this idea has reached the attention of many of the leading airlines in the U.S., he said.

FL Group first bought shares in AMR late last year. So far, in 2007, the shares have fallen more than 20 percent. That decline is consistent with the drop in other airline shares. The Amex airline index is down 22 percent since January 1.

It heightens the awareness that something needs to change for the industry to be functional going forward, Smarason said.

Stock prices remain in a downtrend despite cost cuts, restructuring and fare hikes that generated profits for all major airlines in the third quarter. Experts link the decline in shares to skyrocketing fuel costs that have cast a shadow over the industry recovery.

Nymex crude futures -- directly related to the price of jet fuel -- notched a fresh record high above $96 a barrel on Thursday.

Weakness in airline shares has reignited the talk of spinoffs and consolidation that fizzled earlier this year after US Airways Group failed in its takeover bid for Delta Air Lines, said Bill Warlick, an airline debt analyst at Fitch Ratings.

I think first and foremost it's an effort to maximize shareholder value, Warlick said of plans to sell airline divisions.

He also said that spinning off assets, like maintenance businesses, could clear a path to consolidation if the sale streamlines an airline But share prices appear to be unable to reverse the slow march downward. 's core business and lowers its remaining market value. A sale like that could make a carrier a tempting takeover target, he said.

On the other hand, carriers may be disinclined to sell frequent flyer programs if they plan to merge, Warlick said. Such loyalty programs make airlines more attractive to one another and can be shed easily after a merger.

In either case, the industry may be ripening for consolidation, FL Group's Smarason said. He said he believes airline executives are indeed holding merger talks in private.

Right now there's more talk. But they're just not as readily known, he said.

American Airlines