You Think Flying Is Bad Now...

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That could give British Airways (BAY.L) the opening for the acquisition of American it has long coveted, and a similar move by Lufthansa (LHAG.DE) on either United Airlines (UAUA) or JetBlue Airways (JBLU), in which it already owns a 19% stake. For all its aviation woes, the U.S. remains the largest, most lucrative travel market in the world. "Don't you think BA would fall over itself to buy American Airlines for $1.6 billion?" King says. "That's peanuts to them."

Creative Pricing

This consolidation will come with a cost: Experts believe that for the U.S. industry to shrink to a size that would allow the surviving carriers to earn a profit will require hefty fare hikes and a 20%-to-25% cut in capacity. That means fewer routes, fewer flights, and even more crowded planes. The biggest losers would be smaller cities like Cedar Rapids, Iowa, and Baton Rouge, La., that became accustomed to dozens of daily flights, usually on 50-seat jets that the majors use to feed traffic to their hubs. But oil priced near $130 has rendered those smaller jets uneconomical, meaning that carriers are likely to fly one much larger plane on marginal routes each day, but no more. "We might keep one flight just to keep Congress off our back," muses one industry executive.

Coast-to-coast flights will change, too. With roughly 30% of the weight of any transcontinental flight consisting of the fuel alone, meaning airlines are burning fuel just to carry fuel, carriers can be expected to replace many of those longer nonstops with one-stop flights, intended largely for refueling.

The era of cheap fares will end, too. Since deregulation in 1978, fares have fallen by more than 50% in real, inflation-adjusted terms. Prices will rise, and airlines will become even more creative in how they set fares. Some experts like Mann wonder if carriers won't begin charging passengers by weight, as air-freight companies do to transport goods. "There's a huge cost difference between flying a grown man and a 50-pound child," Mann notes. Industry executives say they can't see that happening any time soon—"too politically incorrect," as one notes. Adds Southwest's Kelly: "I just don't think it makes a lot of sense."

But the airlines will take other steps to wring more cash out of passengers, as American did last week in announcing plans to charge $15 to check a bag starting June 15. It will mean selling even more classes of service, and charging a premium for window, aisle, and exit-row seats as well as those at the front of the plane. Airlines will also create more levels of service off the plane as well, starting with a separate class of check-in, boarding, and baggage-claim service for travelers willing to pay more for the privilege of zipping in and out of airports quicker.

Technical Upgrades

The fee changes and higher fares are likely to cull millions of poor and middle-class travelers from the ranks of regular fliers, ending an era of $99 cross-country fares and bargain-basement weekend flights. It is also likely that Americans will see a far larger array of new travel products being sold at airline Web sites, such as aggressive hotel packages and travel insurance.

But even airline executives admit that this is all chump change compared with what they could save if they could lower the costs of operating their current fleets of fuel-guzzling jets. In a different environment, that would mean eventually phasing out the traditional cigar-shaped planes the industry flies with a more efficient mode of transport. Engineers working on Boeing's (BA) X-48 Blended Wing Project designed a jet that uses nearly 25% less fuel—think of a Stealth Bomber-shaped plane that resembles one giant wing—but the design limitations (no easy exit, nor windows for passengers to look out) mean that the planes are likely destined for military use.

Airline executives think they can wring out comparable savings by prodding Congress to fund the long-stalled modernization of the FAA's air traffic control system, which still relies on 1950s-era radar to route planes. Replacing it with a GPS-based system would cost the government and industry a collective $47 billion to implement, but executives say it could save the industry billions in fuel costs each year. If pilots could fly point-to-point, that could cut the circuitous, 585-mile path they currently must follow between Boston and Washington D.C. by as much as one-third, for instance.

A Lovely Bunch of Coconuts

But developing a GPS-based system could take a decade or more, and in the meantime airline executives are exploring ways to reduce their reliance on jet fuel, a kerosene-based oil that currently costs roughly $4.09 a gallon, up 98% in the past year. But developing an alternative hasn't been easy: Jet fuels have to pack enough oomph to power jet engines and at the same time be dense enough not to freeze in the air at -40C—a temperature that turns most biofuels into solids. But progress is coming. The Pentagon, which buys more aviation kerosene than any other group, has successfully tested a jet fuel made from liquefied coal. Airbus, meanwhile, is leading a consortium on a project to replace a third of jet fuel with advanced biofuels extracted from algae and plant oils. The efforts will help lower fuel costs and reduce dependence on crude oil.

This past February, Virgin Group CEO Richard Branson christened the first-ever commercial flight powered by biofuels. In its test flight, Virgin flew a Boeing 747 running on a blend of oils from coconut and Brazilian babassu trees, produced by Seattle-based Imperium Renewables. "Two years ago, we thought this was pie in the sky," says Billy Glover, managing director of environmental strategy for Boeing's commercial division. "But things have evolved very rapidly. Our guess is that in five years we could have commercial biojet fuels on the market."

Projected cost: Around $2 per gallon, or a third less than current prices for aviation kerosene. Coupled with higher fares, biofuels would be cheap enough for airlines to turn a profit. These days, that'd be enough to make many an airline executive go out and collect the coconuts.

With Adam Aston in New York