Higher fares and new fees are irritating air travelers, but airlines still can't raise money or cut flights fast enough to cover ever-higher fuel prices.
In the view of airline executives and analysts, the industry is facing its toughest challenge yet, with little prospect that carriers can return to profits anytime soon.
Even though most of the big airline companies have large cash stockpiles, analysts suggest they could burn through their cash and go bankrupt by early next year. Already, several smaller airlines have filed for bankruptcy protection or simply shut down in recent months.
"This is worse than 9-11," said Ray Neidl, an analyst with Calyon Securities. After the 2001 terror attacks, "at least you knew passengers were coming back. Oil at $130 is unsolvable."
Among the largest airlines, analysts rate US Airways as the most likely to be pushed into bankruptcy, followed by United Airlines parent UAL Corp.
Bill Warlick, an analyst with Fitch Ratings, said US Airways Group Inc. could face a crunch next winter if revenue drops in the slow fall travel season and fuel remains at current prices. He said the airline has fewer options for raising cash — it can't fetch as much by spinning off assets as others — and without strong international routes is more vulnerable to a weakening U.S. economy.
Just a few weeks ago, mergers were the talk of the airline industry. Delta Air Lines Inc. announced it would buy Northwest Airlines Corp., and executives of other carriers met to discuss other deals that analysts said would lead to bigger but more efficient airlines that could survive in a world of high-priced oil.
The price of oil has nearly doubled in the past year, and jumped 13 percent in just the last month, scrapping all those merger calculations and making airlines worry more about hoarding cash.
"This is going to hurt the consolidation effort," said Roger King, an airline analyst for CreditSights. "When you put two companies together there are upfront costs, and cash is tight everywhere. American has more than $4 billion in cash, but that can go pretty quickly."
So airlines are raising fares — nearly a dozen times already this year — and mining other fees, anything to bring in money.
Airlines were already charging $25 to check a second piece of luggage, but American will break new ground next month by charging $15 for the first bag.
Citigroup analyst Andrew Light estimated that if the new fee hits 20 percent of American's passengers — elite frequent fliers, those paying full fare and international flights are exempt — it would raise $320 million.
But American's estimated fuel bill for 2008 has gone up $3 billion just since the beginning of the year.
American announced Wednesday it would cut 11 to 12 percent of its U.S. flights later this year and lay off workers — probably thousands of them, although officials declined to give a figure.
United announced last month it would cut 1,100 jobs and reduce flights, and Delta wants to cut 2,000 jobs.
Both United and Delta have already announced plans to cut capacity about as much as American, which would reduce their fuel burn and leave travelers fighting for seats on fewer planes.
"Less capacity will inevitably mean higher fares," said Southwest Airlines Co. Chief Executive Gary Kelly. Southwest has also raised fares but, unlike other U.S. carriers, is still growing, though at a much slower pace than a year ago.
Analysts said American's announcement was only a first step toward further cutbacks. Neidl estimated that the major carriers have made only about half the capacity reductions they need to push fares high enough so the airlines can break even.
Others worry that fares could rise so sharply that they will change the very nature of air travel.
Herb Kelleher, the iconic co-founder of Southwest Airlines who stepped down as chairman Wednesday, said flying could become something that only business travelers or the affluent can afford, much as it was in the 1950s and '60s.
"You may see a lot less air service across the United States, and that's really a shame," Kelleher said. "We are heading back in that direction."
Passengers are wondering how long they can afford to fly.
And many, like Roger and Kathy French of Ayer, Mass., who checked four bags on their return from Hawaii to Boston's Logan Airport aboard an American Airlines flight Thursday, are annoyed by the surge in extra fees.
"Pretty soon you're going to be paying more for your luggage than to get to your destination," Roger French said.
Patrick Illing, preparing to board a flight in Newark, N.J., to Los Angeles, said if airlines need to cover higher fuel costs, they should raise fares, not fees on bags.
"This way it's a little sleazier," he said.
Others were plotting how to limit their fees next time. Robin Grossman, a phone company manager from Lunenberg, Mass., also returning to Boston from Hawaii, said she'll think twice when packing.
"I would travel, but I probably wouldn't take a second checked bag," she said. "I would try to carry on as much as I could."
American is already dealing with confusion over the new fee on a first checked bag. Spokesman Tim Wagner said passengers whose carry-on must be checked because the overhead bins are full won't be charged. He said only about half of U.S. travelers check at least one bag.
Other airlines were studying American's new fee, leading some analysts to suggest it was a trial balloon that American might yank back if competitors don't go along. Southwest's CEO said he doesn't like hitting travelers with a bevy of extra fees.
"We do not want to nickel-and-dime our customers because we know they'll complain and they won't come back," Kelly said.
Airline stocks have been pummeled with the run-up in oil prices — shares of American parent AMR Corp. lost 24 percent on Wednesday and are at their lowest level since the company teetered on the brink of bankruptcy in 2003.