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American-US Airways Deal Could Mean End of Airline Stock Run

After more than a year of courtship, US Airways is just days from finally merging with American Airlines.

The Creditors Committee in the AMR bankruptcy case will review the deal on Monday and the two boards will review final details mid-week.

(Read More: American-US Airways: What It Means For Frequent-Fliers.)

While there's still a chance finalizing this deal could get pushed back, all the parties involved are targeting an announcement later this week. It might even happen on Valentine's Day. That would be a sweet way to end an incredible ride for US Airways shareholders.

They should enjoy it. One year runs like the one we've seen for LCC (US Airways) don't come along very often for airline stocks. In fact, some are wondering if this is the end of the line for the run-up in airline stocks.

(Read More: How an American-US Airways Merger Could Impact Travelers.)

Airlines Soar Ahead of the Market

In the last year, the returns for US Airways and the airline industry as a whole have been impressive.

LCC (up 64%)

Airline Index (up 24.5%)

DJIA (up 9.15%)

The airline industry has outperformed the market as a whole for three reasons: bankruptcy cleaning up balance sheets, limited capacity driving profits and consolidation in the industry.

Bankruptcy Clean Up

It is not surprising US Airways and American are finalizing their deal while American is still under Chapter 11 bankruptcy protection.

(Read More: United's Note to US Airways: Mergers Can Be Ugly.)

American Airlines and US Airways aircraft sit on the tarmac at Ronald Reagan National Airport in Arlington, Virginia.
Andrew Harrer | Bloomberg | Getty Images
American Airlines and US Airways aircraft sit on the tarmac at Ronald Reagan National Airport in Arlington, Virginia.

Bankruptcy has been the key to helping all of the major U.S. airlines clean up balance sheets crippled by too much debt, airplane leases that straddled carriers with planes too big and too inefficient, and legacy costs (pensions) weighing on the bottom line.

Once American comes out of Chapter 11, it will be the last of the major airlines that has wiped out many of those debts.

Limited Capacity Driving Profits

Have you flown New York to Chicago lately? There was a time not long ago when the airlines making that flight would only use larger single aisle planes, like a Boeing 737 or an Airbus A320.

Not anymore. I've made more than a few of those flights on smaller regional jets. This is the new religion in the airline industry. Carriers are making longer flights with smaller planes. They're also retiring older, larger, less efficient planes.

(Read More: US Airways CEO: Merger with American Makes Sense.)

The new business model in the airline industry is to sell fewer seats for more money. When they expand service it will primarily be to the big markets or on international routes where they can drive stronger pricing along with more seats. This is the reason airlines are profitable again. Investors have enthusiastically responded by pushing airline stocks higher.

Consolidation Eliminating Airlines

Once US Airways and American Airlines merge, the number of major carriers in the U.S. will be reduced to four. Just a few years ago it stood at seven.

The consolidation of major airlines has been a huge catalyst for airline stocks and for good reason. As the big airlines have merged,they've stripped out service. Instead of six flights a day (between the two airlines) into a particular city, they are only making four or five. It's another way they have limited capacity.

The question now is what happens once US Airways and American finally complete their deal. Sure, there will be discussion about somebody taking a run at Alaska Air, JetBlue, or Hawaiian Air. In reality, none of those are a logical fit and would offer only limited benefits to whoever they merge with.

This is why many believe the end of the US Air/AMR courtship will also mark the end of the consolidation "play" among airline investors.

—By CNBC's Phil LeBeau; Follow him on Twitter @LeBeauCarNews