The nation’s airlines have posted operating losses north of $22 billion since the start of 2001. And the flood of red ink – at the heart of the brewing showdown between Northwest Airlines and its mechanics’ union – shows no sign of stopping soon.

Most airlines saw their per-gallon fuel costs jump by more than a third in the first quarter of this year. And fuel costs have continued to rise as oil prices hover near $60 a barrel.

So, what has happened to fares? Well, they’ve plunged, on average. Businesses report seeing an average savings of 20 percent on fares these days, compared with the fourth quarter of 2004.

“We are seeing record low fares,” said Marty Wahoske, corporate travel manager for an equipment manufacturer in Minnesota. “It’s a very illogical, commodity-type business.”

The lack of pricing power by airlines is a huge factor in their continuing losses, which are inflaming battles with unions over billions of dollars in wage and other givebacks and threatening to send more airlines into bankruptcy. And there’s the risk that more carriers racking up huge losses will follow the lead of United and US Airways and dump their hugely underfunded pension plans, perhaps requiring a taxpayer bailout of the agency that insures the plans.

Low-fare airlines are setting pricing for their “legacy” rivals, such as Northwest.

“Southwest and other low-fare carriers are the price setters,” said Doug Steenland, Northwest chief executive. “If we raise fares and they don’t match us, we have no choice but to roll them back.”

Flying on the cheap

Some travelers will pay a premium for nonstop service, assigned seats, flight frequencies and other benefits. But many won’t.

To save even just $10, some consumers will opt for a one-stop flight on a low-fare airline.

“A good number of customers have told us loud and clear that what they value more and more is price,” Steenland said.

Mechanic Bryan Oester works to refuel a Southwest Airlines aircraft Thursday at Love Field in Dallas. The airline continues to buck the industry's losing trend, posting a second-quarter profit that rose 41 percent over last year.

Legacy carriers face quite a conundrum, says John Pincavage of the airline consulting firm Pincavage & Associates in Westport, Conn. They haven’t been making money with the fares they’ve been charging.

But if such carriers raise fares, they fear gains from fare increases may be exceeded by revenue losses from customers who choose to book lower-priced tickets on other carriers.

“It’s a war of attrition,” Pincavage said. “The guys who need the price increases the most have the biggest costs. Meanwhile, the low-fare carriers don’t want to – or don’t have to – raise fares.”

Legacy carriers are constrained by higher labor costs, restrictive work rules, huge pension-plan obligations and other trappings of the days of heavier government regulation. Upstart low-fare carriers are not.

Not much profit

The downward spiral of fares is often masked by the taxes and fees that can now account for a quarter or more of the price of a ticket. But airlines’ domestic yields – what they get per mile for flying passengers – averaged 12.06 cents last year, down from 14.57 cents in 2000, the last good year for most airlines.

On an inflation-adjusted basis, the carriers’ average domestic yield in 2004 was the lowest on record, the Air Transport Assn. estimates.

Based on what corporate travel managers are saying, fares in the second quarter were running as much as 10 percent lower than they were in the second quarter of 2004, said David Beckerman, director of consulting services for Back Aviation.

At best, recent fare increases that have “stuck” have offset only half of a $16-a-barrel spike in crude-oil prices. That’s what Mark Streeter, managing director of J.P. Morgan Securities, told Congress in June.

Overall, fares are running at late 1980s levels, reports the Air Transport Assn. A fourth of all domestic passengers now pay $200 or less, including taxes, for a round-trip ticket; two-thirds pay $300 or less.

Fares typically are soft where old-line carriers such as Northwest go head-to-head with low-fare carriers such as Southwest, ATA, AirTran and Jet Blue.

The bankruptcies of United and US Airways also have played into the downward spiral of fares. Air carriers involved in reorganizations usually discount fares substantially to maintain cash flows and enhance continued customer loyalty, Northwest has said in SEC filings.

With the Internet, consumers can hunt down the lowest fares with just a few mouse clicks. That, of course, puts more pressure on carriers to compete on price.

“By and large, people view air travel as a commodity,” said Tom Bach, Northwest’s vice president of network planning and revenue management. “They say, ‘I will get to Florida safely and with my bags with just about anybody. Who’s the cheapest?’ “

Prices could firm up if airlines put fewer seats in the air, said Vaughn Cordle, chief analyst with Airline Forecasts LLC and a pilot with a major airline. It’s basic economics: Lower the supply, increase the price.

If domestic capacity falls between 10 percent and 15 percent, airlines might get some serious pricing leverage and offset more of the spike in fuel costs.

It won’t be long, Cordle suspects, before the airlines with the worst balance sheets and greatest losses have to pull down domestic capacity to stem their losses.

To make a little bit of profit, the industry would have to see a 9 percent to 10 percent increase on fares overall, he estimates.

“The guys who are winning are the guys with the deep pockets – Southwest,” he said.