Jim Cramer Flies with Airline Stocks

Jim Cramer had typically shied away from investing in the airline industry, but the "Mad Money" host on Monday actually recommended a few airline stocks, but only on a pullback from current levels.

What changed his viewpoint?

Cramer noted that the airlines have become an oligopoly, meaning a handful of companies now control the entire industry.

"The oligopoly business model is so fantastic," Cramer said. "When you have a nice, stable oligopoly with three or four companies, where there are high barriers to entry or competitors are simply afraid to jump in the space, that tends to make for some terrific performing stocks."

Over the past ten years, the airline industry has greatly changed, Cramer said. More than a dozen airliners have filed for bankruptcy since 2005, he said. Meanwhile, several carriers were acquired by rivals. In 2008, Delta bought Northwest. Two years later, United merged with Continental. The next year, in 2011, Southwest swallowed up AirTran. Last month, US Airways announced a merger with AMR, the parent company of American Airlines.

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If U.S. Justice Department approves the US Airways-AMR deal, Cramer noted that the entire airline industry will be controlled by just three major carriers. If Southwest, the next biggest carrier, is counted, then the top four airliners will account for more than 80 percent of passenger revenues by volume, Cramer said.

Meanwhile, Cramer said it's more difficult to enter the airline industry. Higher fuel prices leave less money to borrow for new planes, he said, while aircraft makers Boeing and Airbus have so much demand, they can't make planes fast enough.

So what's the best way to play the airline oligopoly?

"I like the three big boys the best: Delta, United Continental and especially US Airways," Cramer said. "Although up here, I think you should wait for a pullback before you pull the trigger."

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

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