In order to get back some pricing power and offset higher fuel prices, analysts expect more airlines to merge. After deregulation, the first major M&A dance of the airline industry reduced the number of regional and national carriers by roughly half to 13 by 2001. But after Delta and Northwest announced that they would combine forces last month, other airlines have been slow to follow.

 
Besides merging, airlines also need to cut down on capacity and dump less fuel-efficient planes to keep energy expenditures in check, experts say. Today, United Airlines said it would remove 100 of its least fuel-efficient planes, the Boeing 737’s, and cut up to 1,000 jobs. By the fourth quarter, United’s capacity will be reduced by 14 percent from the previous year. The move comes after merger talks between United and U.S. Airways were suspended last week.

American Airlines recently announced that it would fly 12 percent fewer seats in the fourth quarter. And some destinations will feel the cutbacks. Traffic at Pittsburgh airports, for example, has declined 25 percent as of February compared with a year ago.

That may sound like a lot, but it's close to the level analysts believe airlines need to pare unprofitable flights back by in order to stop the bleeding. Flight delays can also eat away at revenues. In 2007, delayed flights cost airlines an extra $19 billion in extra fuel, crew, and maintenance costs, according to a report by the Joint Economic Committee.

One more option for airlines is to hedge against rising fuel prices.Southwest Airlines, the only major airline to actively protect itself against higher oil costs, has been able to increase its cash levels to more than $3 billion thanks to its hedges. In addition, the Dallas-based low-cost airline has hedged 70 percent of its 2008 fuel consumption at about $50 per barrel.

Buying protection still makes sense if airlines believe crude will go even higher, says Robert Mann, an industry consultant. The problem for airlines, however, is that they're unprofitable at current prices, so unless costs are reduced or revenues raised, hedges will diminish the pain but not heal it.

Southwest's cash hoard makes it the best-positioned airline to survive the worst of the oil crunch, estimates Morningstar.  Indeed, some have even suggested that Southwest may be the only American airline to survive the current fuel crunch.

Still, a combined Delta and Northwest are also on the relatively healthy list, as is Continental. At the other end of the spectrum, the airlines most likely to need bankruptcy protection are American Airlines, JetBlue, and US Airways.

But not everyone thinks the industry will get crushed. Roger King, an airlines analyst with CreditSights, points to the relative resistance of drivers to higher gas prices as a sign that demand may not wane as much as feared when ticket prices do head north. Average gasoline prices have jumped 70 percent since January 2007, and although consumers are cutting back on car usage, the number of miles driven is still up 7 percent.

King estimates that at $117 per barrel, airlines would have to increase fares by only 14 percent on average over 2007 levels in order to break even.

"That doesn't seem like a lot," he says. "I think the airlines are just an industry that everyone likes to bitch about."