Reports out this morning from the Associated Press say that David Neeleman, founder of JetBlue, is planning start a new Brazilian airline and is in negotiations with Brazil’s Embraer plane maker to buy 36 mid-range jets.

The report originated with the O Estado de S. Paulo newspaper.

According to the publication, Neeleman has already lined up $200 million for the venture.

The newspaper, citing sources close to the deal, said Neeleman has already bought a small Brazilian airline named Cheta with government authorization to operate in Latin America’s largest nation.

And folks, here’s the kicker to the story.

Because Neeleman holds both American and Brazilian citizenship, he would be able to overcome a major hurdle: A requirement that only 20% of Brazilian airlines can be owned by foreigners or foreign companies.

Interesting, eh?

Thanks to a number of you who wryly noted that not too long after we posted our note about the drop in Mesa’s stock price yesterday  (following the airline’s traffic release) that suddenly volume in the stock picked up and well, by the end of the day the stock was down just a bit more than 1%.

Heh.

As one of you wrote, “I think your post motivated the troops.”

Very funny.

Not surprisingly, that late-day surge disappeared this morning with the stock down more than 5%. There was a pretty big sale right after 10 AM ET. But as I look just now, it appears to be making a small recovery.

For those of you who don’t make it a habit of watching Mesa shares on a daily basis — this stock has a pronounced propensity to pick up in volume and price late in the day. Especially if it has had a down day prior.

This stock has also always been known as a  “trading” stock, and given the airline’s current situation — this type of volatility is to be expected as people rotate in and out, trying to grab gains on the upticks. Conversely, they can use price gains as a reason to shed some positions.

Ticker: (Nasdaq: MESA)

Republic Holdings:

“Monday, Republic Airways Holdings Inc. (RJET), a provider of various airfreight services, announced traffic results for the month of January, reporting a 34.1% rise in traffic on 30.6% increase in total capacity. Load factor for the month increased 1.7 points.

For the month of January, Republic Airways’ load factor increased 1.7 points to 65.6% from 63.9% in the same month of the previous year.

The Indianapolis, Indiana-based company’s revenue passenger miles of 710.0 million were 34.1% higher than 529.3 million in the comparable month of the earlier year. Available seat miles grew 30.6% to 1.08 billion from 828.6 million in the same month a year ago.”

Mesa Air Group:

Mesa Air Group, Inc. reported its preliminary traffic figures for January 2008. Year-over-year available seat miles decreased 11.76% in January 2008 to 690,205 compared to 782,157 in January 2007. Revenue passenger miles decreased 13.15% from 537,740 in 2007 to 467,045 in 2008. Passenger enplanements decreased 14.33% from 1,267,414 in January 2007 to 1,085,778 in January 2008. Year-over-year load factor for the month of January was 67.67% in 2008 compared to 68.75% in 2007. (A decline of 1.1 point.)

Oh, and Mesa’s money-losing go! operation? The airline flew at a 58.36% load factor in January. For 2007 the load factor was 58.41%.

In the airline’s release, Mesa CEO Jonathan Ornstein was quoted as saying that the airline’s operations had been negatively affected by “severe winter weather.”

So how come Republic’ s operations weren’t so adversely affected by the same “severe winter weather?”

Apparently some other folks aren’t buying the story that all of this decline is due to bad weather, as shares of Mesa are down about 8% as of this writing, posting the biggest decline today (so far) for the sector.

Tickers: (Nasdaq:RJET); (Nasdaq:MESA)

An article in today’s WSJ says two things. One, we should hear more about a Delta/Northwest deal in the next week or so. Yawn. Two, things are “heating up” between United and Continental.

Unless upper management at Continental stays intact as part of such a deal, I’m not signing on — regardless of how much money Glenn throws at me to do otherwise.

On another front, the American/ Alaska rumors simply won’t stop. Today birds are telling us that Frontier may also be in the mix.

Would certainly be a quick and, I might add, very dirty way, to finally give American that western presence they have lusted after for ……oh…..how long? Yes, visions of Reno Air and Air Cal rear their ugly heads. Would also give American a slew of nice new aircraft, although they would be of different flavors.  But when all is said and done, that alone might be worth more on the Ouija board of potential match-up bingo than anything else.

As I have said before — don’t try and figure out any of these things by questioning route match-ups, fleets, union pairings, or other rational measures. It will drive you nuts. And frankly, it’s not worth it.

Nope, as Dick Vitale might say, “It’s all about survival baby!”

Speaking of, good to hear Dick return in his fine form last night for the Duke/UNC match-up.

FYI, the biggest movers in the airline sector today are AMR, parent of American, Alaska, JetBlue and Southwest.

Speaking of Southwest – As I mentioned in last week’s PBB, the hedge fund parent of ATA said in a recent SEC filing that it is considering unloading its passenger operation.

Yes, that same passenger operation that Southwest now codeshares with.

This brings up a couple of interesting things to chew on. On, there are reports that Aloha Airlines might be interested in snapping up the passenger operation. That would, of course, depend on what Aloha mega-investor Ron Burkle decides he wants to do. But it certainly could complicate the already nutso Hawaiian airline landscape.

But also, what will Southwest do?

Would be a much more valuable deal for Southwest if ATA had not already sold off those nice slots on the East Coast to AirTran.

Ticker: (NYSE:LUV); (NYSE:CAL); (Nasdaq: UAUA); (NYSE:ALK); (Nasdaq: JBLU);  (NYSE:NWA); (NYSE:DAL).

If you are wondering why your favorite stock (and hey, today it doesn’t even need to be an airline stock) is glowing red and not green this afternoon as you check your online portfolio, there’s one big reason.

The Institute for Supply Management’s (ISM) report which was released this morning, was worse than bad. It was dreadful.

The ISM reported today that its index of service sector business activity declined to 44.6 in January from a revised reading of 54.4 in December.

Economists surveyed by Thomson Financial had expected a slight slowdown but had still forecast growth, with a median estimate for the index of 53.

As with a number of economic indexes, a reading above 50 usually indicates expansion of the economy, while a number below 50 indicates contraction.

As if the drop was not newsworthy enough just because of its sheer amount, this also marked the first time the service sector reading has contracted below 50 since March 2003.

“This is an absolute collapse of this index,” Nigel Gault, chief U.S. economist at Global Insight told CNBC.

So now that we know the big story, how about the things with wings? How did they fare specifically?

Not so good.

Of all the airline stocks we track, only five posted a gain for the day. And the extent of those gains were nothing to get excited over. Those stocks were: Continental, American Airlines, Alaska, Allegiant and Ryanair.

And oil prices? Crude closed today at $88.41 — down about $1.61.