How long can the big airlines survive?

The legacy carriers premised their hub-and-spoke systems on the notion that business passengers would pay a premium for the convenience of more connecting flights. Some, like Delta, are now scheduling their flights to use their aircraft and personnel more efficiently.

That brings up yet another issue for the large, older carriers - changing expectations. For decades they've focused their advertising on their great service and frequent-flier benefits. Now, the low-cost carriers are touting low prices rather than perks. As the big carriers have had to cut back, service is suffering and passengers can't help noticing, says Clint Oster, an aviation economist at Indiana University in Bloomington.

"You have some nervous and unhappy people on the front lines for the legacy carriers," says Professor Oster. "If your carrier is bankrupt, you've probably already given back wages and benefits and so many people have been laid off that those who are left are the more senior, those who remember the good old days. So it's not too surprising that you see some discontent."

At the same time, more people are flying JetBlue and SouthWest and realizing that in addition to offering lower fares, the low-cost carriers also have cheerful employees and great on-time performance, to say nothing of the free TV on JetBlue.

Indeed, for the first time, five of the top six carriers rated by the annual Airline Quality Rating survey were low-cost carriers.

"The big problem for the legacy carriers is still trying to get their overall costs in line, without sacrificing the quality," says Richard Gritta, an aviation economist at the University of Portland in Oregon. "That's really, really tough when you're inefficient to start with and then you throw in the price of oil, which has pushed $60 a barrel."

In addition, more people are flying now than pre-9/11, but they are also paying far less to do so. According to the Air Transport Association (ATA), the lobbying arm for the nation's largest carriers, passenger revenues used to make up between 0.95 and 1 percent of gross domestic product. This year, they accounted for 0.7 percent. This means that $29.3 billion that used to be spent on airlines, no longer is.

The result is that the nation's aviation system will look very different in five years.

"I see convergence. The low-cost carriers are becoming more like network carriers, and network carriers are becoming more like low-cost carriers," says John Heimlich, an economist at the ATA. "Something that's the best of both worlds is emerging. The real question is how many of each do we end up with?"

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