As the faltering economy forces U.S. airlines to grow even leaner and meaner, Barbara S. Peterson reveals strategies for trouble-free flights and reports on how insiders view the future of the industry

I am sitting in seat 10B on flight 744 from Dallas to New York, getting a front-row view of where air travel is headed in this country. Booked two weeks in advance, my coach-class ticket cost $1,258 round-trip—and that was without checking a bag, changing my ticket, or any other innocuous act that could have upped my tab by hundreds of dollars. Through the translucent curtain separating economy from first class, I can spy an attentive cabin crew pouring wine as two dozen fortunate fliers feast on fresh pasta served on china. By contrast, my only gustatory options on this three-hour dinnertime flight are a standard-issue flagon of plonk and an unwholesome assortment of snack foods. Together, they set me back more than $10.

Even in these lean times, this route ought to be a gold mine for the world's largest airline: It's a big business travel market without any competition from arch rival low-fare carrier Southwest Airlines. But a quick look at the numbers, which I request from American after my return, reveals that it costs the carrier about $32,000 to fly this 188-seat 757 to New York; that's for gas, crew, depreciation of the plane, and maintenance. The average revenue per passenger was just $231—the completely full first-class cabin was undoubtedly packed with upgraders—meaning American cleared just a few thousand dollars on that flight. If all aboard had paid the industry average fare of $190 one-way that day, flight 744 would have shown a $2,000 loss. As it was, the carrier eked out a small profit, which meant my flight was one of the few domestic ones that day to earn the airline money. "With our low fares, we've addicted the nation to flying," says American executive vice president for marketing Dan Garton. "But it is unrealistic to think it can continue."

It won't. U.S. airlines have lost more than $30 billion since 9/11, with several major lines filing for bankruptcy protection. By last year, demand was up and some carriers were reporting that profits were within sight. But then the price of oil spiked, and airlines, with little fat left to cut from their operations, were back in the red. U.S. carriers were expecting to lose $6 billion this year, and that was before the global financial meltdown.

To stem losses, U.S. airlines began shrinking their schedules this fall, retiring more than 500 planes and laying off tens of thousands of workers. When they're through, it will be as if a major carrier the size of US Airways were suddenly vaporized. Most airline executives agree that the industry is undergoing the biggest transformation since it was deregulated 30 years ago. "This is a real game changer," says Southwest CEO Gary Kelly, noting that even his perennially profitable discount airline is feeling the effects of the slowing economy—indeed, in October, Southwest posted its first quarterly loss in 17 years—and is raising fares and putting the brakes on expansion.

What does this mean for travelers? For starters, you'll see higher fares at peak times, have fewer flights to choose from, and pay for everything that isn't bolted down; premium class will be a reward for the very "best" customers—those who shell out four-figure fares—and the rest of the plane will be increasingly spartan. "There is no question, the industry's changes will be bad for the consumer," says Michael Derchin, transportation analyst with FTN Midwest Securities in New York. "You will end up with a combination of far fewer choices—in some cases no service at all—and the fares are going to be higher." Airlines that can't raise their ticket prices because of softening demand are all the more likely to pile on more fees.