How To Create Balloons In Illustrator

The Shape Builder Tool, which was added in Illustrator CS5, allows you to combine multiple shapes in various. You can merge shapes, as well as subtract one shape from another.

This tutorial applies to Illustrator CS5, CS6, and CC versions.

In the first example, an illustration of a hot-air balloon is being developed. The overall silhouette of the balloon has been created as a closed path. Line segments representing the seams have been added. Note that those lines are extending beyond the edges of the silhouette. In order for the Shape Builder to work properly, the paths must at least touch, so extending the lines beyond the edges ensures there won't be any weird gaps.
The lower "collar" of the balloon will be created first. Using the Selection Tool, I'll click the silhouette shape, and Shift-click the horizontal curved line.
Selecting the Shape Builder Tool, I'll then hover over the collar area, and click when the area shows a dot-screen highlight.
Switching to the Selection Tool, the tail ends of the line outside the silhouette can be deleted.
Still using the Selection Tool, I'll select the upper portion of the balloon shape, as well as the two vertical lines.
With the Shape Builder Tool, I'll click on each of the three sections in selection, then switch back to the Selection Tool to delete the tail ends of the lines. Shown below is the balloon illustration with color applied.
Although you may need to use your imagination, below is the beginning of a fish illustration.
I want the body, fins and tail to all be separate shapes, so first I'll select the body and tail shapes, then choose the Shape Builder Tool. This time I'll click, hold and drag through the body and just the portion of the tail that overlaps.
I also need to combine the overlapping sections of the fins with the body, so using the Selection Tool, I'll select the fins and body, then switch back to the Shape Builder Tool and drag through the overlapping section of the top fin shape, through the body and into the overlapping part of the bottom fin to combine them.
Here I've added another shape for the mouth, which I want to subtract from the body. I'll select the body and mouth shapes, then choose the Shape Builder Tool. This time I'll hold down the Alt and drag through just the mouth shape. Notice the minus sign [-] that appears in the cursor.
Here's the cartoon fish illustration with color applied.