Airfares stay low, for better and for worse

The ongoing threat of terrorism is another factor that could undermine the network carriers' ability to raise prices. The disruption of the plot to blow up as many as 10 airliners from Britain prompted US authorities to ban liquids and gels in carry-on bags, adding to an already-high-hassle factor at security checkpoints. The new rules prevented many people from making their overnight bag a carry-on item, which put a damper on some short-haul flights.

"This is still destabilizing and another reason why airlines can't raise prices. People are still nervous," says Richard Gritta, an aviation expert at the University of Portland in Oregon.

On Monday, the Transportation Security Administration announced that it will now allow some liquids and gels in carry-on baggage. But the agency was very specific, which some analysts say could add to travelers' confusion and frustration.

Other analysts think the changes will help the airlines, particularly in terms of business travelers who often take nothing but a carry-on bag. "We think we're going to see a return to short-distance flying. Before, some people didn't want to check their overnight bags [and opted not to fly]," says David Stempler, president of the Air Travelers Association in Washington.

Aviation analysts like Mitchell believe that in order for the overall US aviation industry to return to economic vitality, Congress needs to step in and formulate some kind of national aviation policy that will allow both the low-cost carriers and the network airlines to thrive in the same environment. In the past, the network carriers depended on the big premiums paid by business travelers to cover their costs, which are significantly higher than those of the low-cost carriers. But the business community has discovered not only the low-cost carriers, but also the cheap leisure fares available on the Internet. A study by AirlineForecasts found that in 2006, 50 percent fewer business people are paying the higher business fares than in 2001.

While the network carriers have made great strides in cutting labor costs and increasing efficiencies over the past five years, their costs are still high.

"Their costs are still way, way above the low-cost carriers, and the premium they can get for business travel has been evaporating," says Mitchell.

He and others contend the major network carriers, despite their problems, are still central to the health of the aviation industry, as well as the overall economy. They have the largest systems with international connections, which businesses still depend on. The challenge is to find a way for them to make money in this highly competitive market.

"The fact is that it's consumers who have pushed this industry along with deregulation to lower fares, and to survive in the long-term revenue climate, you've got to get your costs of production down," says John Heimlich, chief economist of the Air Transport Association, the lobbying arm of the major carriers.

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