The next time you’re suffering through a horrible flight—enduring, say, five or six hours at a packed gate waiting for your late connection, or sitting on the tarmac while the 23 planes ahead of yours inch down the taxiway—give a moment’s thought to Alfred Kahn. A retired economics professor at Cornell University who’s still active at the school in his nineties, Kahn is the person most directly responsible for deregulating the U.S. airline industry. As head of the Civil Aeronautics Board, the federal agency that regulated the airlines through the late 1970s, he helped craft legislation that would dismantle the agency and bring competition to the commercial aviation business. Jimmy Carter signed that legislation in October 1978, 30 years ago this month.

In the three decades since, fares have fallen dramatically and consumers now have more choices than ever—more routes, more flights, more aircraft. At the same time, few passengers would say that flying is a pleasant experience right now. Airports are mobbed, planes are older and dirtier, and add-on fees are bordering on the ridiculous. In 2007, more than a quarter of all flights were delayed, resulting in 112 million lost hours for passengers.

The airlines aren’t having much fun either. Southwest still makes money—just barely, thanks to its fuel-hedging program—but everyone else has been in the red for years. The six most established carriers (American Airlines, Continental, Delta, Northwest, United, and US Airways) lost nearly $6 billion in the second quarter of 2008 alone and are projected to lose in excess of $10 billion for the year. Four of those six have been through bankruptcy in the past decade. Virtually all of those bankruptcies happened before the recent runup in fuel prices, though expensive oil only exacerbates the industry’s problems. Prices have come down a bit in the past few months, but a lot of experts think that the airlines will be in trouble as long as oil costs more than $100 a barrel. (View a graphic that details the financials of the major airlines.)

In the midst of this mess, former American Airlines C.E.O. Bob Crandall gave a speech to a group of airline executives in New York City in June that sounded a little like heresy: Crandall essentially called for reregulating the sector. “We have failed to confront the reality that unfettered competition just doesn’t work very well in certain industries,” he said.

Predictably, the speech triggered some intense, and intensely negative, reactions among current airline C.E.O.’s: “The surest way to destroy the airline industry is to have it reregulated,” says Gary Kelly, C.E.O. of Southwest, in an interview. “If your model is not working, let the market forces decide,” says Dave Barger, C.E.O. of JetBlue. Hubert Horan, a consultant and a former executive at Northwest, says, “I’m not aware of anything within a light-year of any form of economic regulation. What’s out there is a bunch of frustrated people, some of whom throw out some half-baked stuff.” (It’s worth noting that most C.E.O.’s were just as strenuously opposed to deregulation back in the 1970s.)

Crandall ran American Airlines from 1980 to 1998, and he’s a bit of an iconoclast. He has long hated the intense competition in the business and the resulting fare wars and turf battles. He once said that in commercial aviation, prices are set not by a company’s costs but by its “dumbest competitor.” Crandall was also known for ruthlessly cutting costs to keep American profitable; in the mid-1980s, he ordered olives removed from the salads served in-flight, a move that saved the company about $100,000 a year.

But on the subject of reregulation, Crandall may be right. “Airlines work with a very distorted supply-demand equation,” he said, and right now that’s manifesting itself in the form of too many flights, too much traffic, and fares that don’t come close to covering an airline’s costs. Worse, the infrastructure—planes, fuel, gates—is extremely expensive and too inflexible to quickly adapt to changes. So any market corrections involve a lot of pain for consumers and a lot of destroyed capital for airlines.

To be clear, we’re not calling for socialism or even a return to 1970s-style regulation. From the late 1930s until 1978, the Civil Aeronautics Board, the organization Kahn dismantled, set fares for all airlines in the country. Carriers were guaranteed a 12 percent return on any flight that was at least 55 percent full. The C.A.B. also controlled routes and decided which airlines got to fly where. Critics of regulation dismiss that era, saying it didn’t allow any new competition, though that’s not exactly true; startup airlines did appear, but most promptly died because of the bureaucratic struggle for routes. Southwest Airlines launched in the late 1960s and endured four years of court battles before its first plane could take off. (A lot of the company’s early success was due to co-founder Herb Kelleher’s background as a lawyer.)

But a few policy changes today would go a long way toward fixing some of the industry’s biggest problems. Specifically, what’s most needed is some form of congestion pricing, a tougher set of bankruptcy laws for airlines, and an improved air traffic control system. All three initiatives would reduce traffic and delays and allow the smartest competitors to actually make money in this business. And because the aviation system is so complicated and requires such steep investments in infrastructure, all three would require the government to step in.

Free-market advocates say that any government intervention can only make things worse. “The fundamental challenge the airline industry faces and always will face is to match passenger capacity with demand,” says Clifford Winston, an economist at the Brookings Institution, which is generally opposed to regulation in any industry. “They had little practice doing this under regulation. Since they deregulated, they’ve had problems trying to accurately forecast the business cycle.” Which is perhaps understating the problem a bit. After 30 years and a cumulative net loss of more than $22.3 billion for the airlines, it’s reasonable to ask if their problems are really due to a lack of practice or if the cause is something more systemic—and something that a new set of operating rules might be able to fix.

Some of the proposals aimed at making the skies less crowded are, frankly, a little nuts. For example, Crandall suggests, among other things, that passengers on connecting flights should always pay more than they would for nonstop flights. That’s the opposite of how fares currently work, and it makes an odd kind of sense: Connections cost airlines more in fuel and put a greater burden on the system in that they require twice as many gates and runways. But this is the kind of overly complicated scheme that drives conservatives into tirades, and it would be impossible to implement. “There’s no practical logic,” says Horan. “You’re charging for a lower-quality product.”

A better solution would be to reduce traffic while still letting carriers fly where they want and charge what they want. The best approach currently floating around the industry is some form of congestion pricing, in which the airlines would be financially penalized for jamming flights into the busiest times of day. For decades, airlines have paid landing fees to airports based primarily on a plane’s weight. (For a full Boeing 737-800 at New York’s LaGuardia Airport, the landing fee is about $1,060, which gets passed along to consumers as part of their fares.) But those fees encourage airlines to use smaller planes, which are generally less fuel-efficient than bigger aircraft and carry fewer people, yet put the same burden on runways, gates, and airspace. In 2002, La Guardia handled 240 flights a day with fewer than 100 seats; today, there are more than 300 such flights. At Kennedy Airport, the number of these flights has more than doubled during the same time period. It’s akin to a bunch of commuters each driving themselves to work instead of carpooling.

More significantly, weight-based fees don’t factor in the time or date when a plane lands, yet every traveler knows the difference between landing on a Wednesday night in September and landing on the Wednesday night before Thanksgiving. This is a problem that Alfred Kahn foresaw even before deregulation. (He compared it to charging the same per-pound price for different cuts of beef.) Kahn implored the Federal Aviation Administration to implement some kind of congestion-pricing system back then, and 30 years later he’s amazed that it still hasn’t happened. “It was perfectly clear at the time that we had an insane system,” he says. “You have to price your services based on the burden a plane puts on the system.”

But politicians and the Air Transport Association, the principal lobbying group for the airline industry, hate the idea of charging fees based on landing times. They’ve strongly opposed congestion pricing every time it’s come up for debate at congressional hearings. David Castelveter, vice president of communications for the A.T.A., says it’s just another tax on the airlines. Still, hope springs. In July, the Department of Transportation approved a regulatory change that would give airports the explicit right to charge higher fees for planes landing at busier times. So far, no airport has done so.

Another fix would be to revamp U.S. bankruptcy laws so that they can be applied more specifically—and punitively—to airlines. It’s hard to think of another industry in which almost every major player has gone through Chapter 11 reorganization. Some have been through it twice: US Airways filed in 2002, came out of the process in 2003, and filed again in 2004. Yet all of these carriers are back on the streets—or in the skies—and continuing to leak money. United Airlines spent more than three years in bankruptcy, finally emerging in 2006. (The restructuring dragged on for so long that the federal government actually did tweak the bankruptcy code to prevent the process from taking longer than 18 months.) No one today would call that a success: United negotiated new labor contracts, terminated its pension plans, and based its profit outlook through 2010 on an oil price of $45 to $50 a barrel. It’s projected to lose about $1.2 billion this year.

Because of the huge implications for employees, the government can’t legally force any of these companies to be liquidated. But we’d all be a little happier at the airport if it did so once in a while. Right now, Chapter 11 is the financial equivalent of a get-out-of-jail-free card for airlines that allows struggling companies to wipe away their debts—and immediately start to build new ones. “There used to be a stigma about bankruptcy; now it’s a strategy,” says Southwest’s Kelly. “There are essentially no barriers to entry and a lot of barriers to exit. You end up with a lot of inefficient capacity out there.” Instead of letting an airline simply restructure its debts, creditors should be able to offer an alternative plan, making liquidation a realistic option.

Finally, the fix with the most widespread support in the industry has less to do with regulation and more to do with engineering—revamping the country’s air traffic control technology. No other proposal has such broad support or makes so much sense. “The far better public-policy discussion is not should you regulate or reregulate but about a modern air traffic control system,” says Northwest Airlines C.E.O. Doug Steenland.

Operated by the F.A.A., the current system is almost comically outdated. “It’s the equivalent of using a typewriter,” says the A.T.A.’s Castelveter. Even wristwatches now have G.P.S. satellite technology, yet planes still navigate with ground-based radar that was installed back in the 1950s. A much publicized glitch in the flight-plan system in August led to hours-long delays for hundreds of planes and would have been worse if it had happened at a peak travel time. The system requires thousands of F.A.A. employees manning air traffic centers—flights get passed from person to person along their route, from takeoff to landing—and it’s less precise than satellite technology. That imprecision requires greater distance between planes, which eats up precious time and airspace, further exacerbating the traffic problems caused by all the unnecessary planes flying around right now.

The F.A.A. set out to modernize air traffic control in 1981, estimating that the job would cost $12 billion and take a decade to com­plete. Twenty-seven years and $50 billion later, the agency has little to show but patchwork upgrades to existing equipment. “The tragedy in this story is that a lot of us have identified what it takes to get this fixed,” says airline consultant Daniel Kasper.

Admittedly, switching over to satellite technology is a massive project—the F.A.A. can’t just stop all planes from flying for a few months—but the bigger obstacle has been money. Currently, the agency’s operating budget comes almost exclusively from taxes on commercial plane tickets. Private jets pay a disproportionately small share, through fuel taxes, and critics say they should start contributing more. After all, those Gulfstream G-550s use the same runways andand air traffic controllers. A new proposal, backed by President Bush, would change this model and start charging all planes—commercial and private—for the burden they put on the system, with some of the extra revenue devoted to upgrading the air traffic control system. That proposal was stripped from an F.A.A. reauthorization bill now pending in Congress. The incoming administration, regardless of which political party wins, should put user fees back on the negotiating table and get the F.A.A. bill passed.

Assuming all these proposals—congestion pricing, new bankruptcy laws, and a better air traffic control system—were to magically happen tomorrow, what would the industry look like? Bad news first: Fares would go up, and consumers would have fewer choices of routes and airlines. A few carriers would probably go out of business. One possible candidate is US Airways, which right now is looking at its third trip through bankruptcy in less than a decade and might have a hard time avoiding liquidation if that happens. American and United are losing money at rapid rates, but neither is likely to disappear.

In exchange for higher fares, consumers would get better, more predictable service. Flights would—believe it or not—take off and land on time, with the exception of the occasional storm. And airlines that operated intelligently would actually make some money in the business. They could afford to invest in newer, more fuel-efficient planes, which would require less downtime for maintenance and be a more pleasant place for passengers to sit for six or seven hours (with no old sandwich crusts stuffed into the seat-back pockets). Better air traffic control would let the airlines turn those planes around faster on the ground and keep them in the air more often—which is the only place planes generate any revenue. Even small benefits would accumulate from getting rid of friction in the system. (About $4 billion is lost in wasted fuel each year simply from planes idling on the ground.)

Finally, stronger balance sheets would help improve the airlines’ credit ratings, thus reducing their borrowing costs. Those that built up decent cash reserves could use some of that money to hedge their fuel purchases, which would smooth out wild swings in prices. Right now, Southwest is the only U.S. carrier to aggressively hedge fuel. Other carriers tried similar programs in the early 2000s but didn’t have the necessary cash and had to stop. No one puts insulation in their house when they can’t afford to pay the heating bill.

You can almost hear a skeptic saying, “Yes, but shouldn’t the market decide whether all this happens?” To some extent, it already has—at least on the consumer front. Fares have crept up about 5 percent this year and are likely to keep rising. Airlines are starting to trim some of their less-profitable routes. Already about 100 small cities have been dropped from flight routes, including St. Augustine, Florida, and Santa Fe, New Mexico. Bigger destinations like Eugene, Oregon; Toledo, Ohio; and Gainesville, Florida, are facing considerable cuts in service. But so far the airlines have benefited little from these measures. They continue to burn through money at tremendous rates and still can’t charge consumers anything close to their operating costs for certain flights. Until they can charge more, and until some unprofitable flights get cut, air travel will remain a miserable experience.

Even Alfred Kahn, the dean of deregulation, says that passengers have become too used to getting cheap fares and being able to fly anywhere they want, whenever they want—especially when fuel is so expensive. “In the interim, there’s been an explosion of benefits” from deregulation, he says. “In the long run, we have to jet around less than we do now.”