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Major turbulence ahead for airlines

Industry officials and analysts urge Washington to act to avert a collapse.

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But some aviation analysts say that is not nearly enough. For one thing, not all economic analysts believe that speculation is the primary culprit in the hike in oil prices. They argue that a major factor is concern about demand outstripping supply because of things such as the roaring economies in China and India and the political violence in Nigeria. These analysts are skeptical that reining in speculation will have much impact on oil prices.

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If oil remains at about $130 a barrel, it will dramatically alter the industry's economic operating model, some aviation analysts say. Then, they argue, it will be crucial for the government to step in and re-regulate certain aspects of the way airlines operate.

"If fuel is going to stay there, we're going to have to shrink the industry by 30 or 40 percent," Mr. Mitchell says. "At a minimum, the government needs to help manage that shrinking process.… Otherwise, there'll be no guarantee that you can get from here to there."

Other issues: delays, poor service

But instead of just focusing on this immediate crisis, Mitchell and Mr. Crandall point to the record delays and deterioration in service overall. It is crucial, both say, that government and industry leaders step back and have a debate about the aviation system's priorities and how best to improve and manage its efficiency and viability.

"Every major airline is losing huge amounts of money with service standards that are unacceptable, to be generous," Crandall says. "We need to have a national transportation policy: The nation's whole transportation infrastructure is failing, and our government has no plan."

But the major airlines are opposed to any new regulation.

"We think de-regulation has been extremely beneficial to the passengers and communities that have service today," Mr. Castelveter says. "It has allowed for competitive growth and for fares that are lower than they were in a regulated market."

Some aviation analysts also oppose any attempt to re-regulate the system. They point to the success of Southwest Airlines and other low-cost carriers. They contend that better airline management and improvement of the air-traffic control system could solve some of the system's worst problems.

"Let's make sure the air-traffic control system is accommodating all that it can accommodate, and it sure ... isn't doing it now," says Aaron Gellman, an aviation analyst at Northwestern University's Transportation Center in Evanston, Ill.

Professor Gellman and others are also concerned that imposing even a small amount of regulation will lead to higher prices and an even less efficient aviation system.

"Once you let that camel's nose in the tent, it's going to set up housekeeping," says Michael Boyd, president of The Boyd Group in Evergreen, Colo. "Deregulation has worked OK, and the airlines will adjust to these oil prices. We can get through this."

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