Get ready for the old good news, bad news routine when the airlines start reporting first quarter earnings on Tuesday morning.
The good news: This will likely be the most profitable first quarter ever for the airline industry.
The bad news: Every carrier will warn of potential problems and earnings hits in the second quarter due to FAA sequester cuts.
For investors, this represents an interesting dilemma. Do they stay with airline stocks that have risen 25-45 percent in the last year just as they head into the busy summer season or do they sell ahead of potential problems with sequester delays? It all comes down to how much you believe the FAA delays will truly hurt bookings and earnings this summer.
(Read More: Fliers More Fed Up Than Ever Before, Study Shows)
Delta, US Airways and Hawaiian Lead the Way
The start of the airline earnings season will include two carriers expected to post a profit in the first quarter. The first quarter is historically the slowest three months of the year for airlines because it lacks major holidays and traffic.
Delta is expecting to report earnings per share of 6 cents on revenues of $8.51 billion, according to a poll by Thomson Reuters. Analysts are expecting US Airways to report earnings of 28 cents per share on $3.37 billion in revenues, and Hawaiian Holdings is expected to post an earnings per share loss of 23 cents on revenues of $494 million.
Impact of FAA Sequester Furloughs
Ordinarily, posting a profit in the first quarter would dominate the earnings conference calls, but not this year. The focus of the conference calls will also be the impact of the FAA sequester cuts.
Delta has already warned flight delays will impact earnings in the second quarter and at least one Wall Street firm lowered its estimates for select carriers. Buckingham Research trimmed estimates for JetBlue, Southwest, and United due to concerns about their exposure to hubs or routes that could feel the impact of sequester delays.
(Read More: Flight Delays Pile Up Monday After FAA Budget Cuts)
Whether or not the air traffic control delays will have a lasting impact remains to be seen. The number of delays on Sunday, the first day the FAA furloughed about 10 percent of the air traffic controllers, were moderate. And while the New York hubs saw some delays on Tuesday, flights for the most of the U.S. were on-time.
FlightAware.com, which tracks delays and cancellations compared Monday's cancellations with the previous Monday when the air traffic control towers were fully staffed and found the number of delays were up 5-13 percent in select markets.
—By CNBC's Phil LeBeau; Follow him on Twitter: