There seems to be only one sure thing about the future for low-fare carriers, particularly in the U.S. and Europe - their ranks will be thinned. But by just how much is not yet clear.

Some in the air transport industry have speculated that low-fare carriers will be hit much harder than network airlines by the run-up in fuel costs this year. Giovanni Bisignani, director general of the International Air Transport Assn., argues that because fuel is a higher percentage of low-fare carriers' operating costs, they are suffering more. In Europe, it will lead to consolidation to just three or four stronger low-fare airlines, he suspects - low-fare airlines typically are not IATA members, but compete strongly with them.

Nevertheless Bisignani's isn't the lone voice. Air France-KLM boss Jean-Cyril Spinetta also has predicted the demise of several low-fare carriers. That's a feeling financial analysts have echoed, questioning in particular the validity of the aircraft orders placed by some airlines.

But low-fare advocates disagree. Ryanair CEO Michael O'Leary argues that "higher oil prices won't end low-fare air travel." However, it "will speed up the decline of high-fare short-haul travel this winter as many European airlines consolidate or go bust" (see p. 76).

On medium- and short-haul routes low-fare carriers do have relatively greater exposure to fuel costs. However, Rigas Doganis, an airline consultant with ties to EasyJet, notes that those airlines benefit from customers "downtrading" from higher-fare carriers to lower-priced ones, so traffic volume remains strong.

And fuel is an issue for everybody. All else being equal, such benefits of the model as simplicity and efficiency remain unchanged, thus the cost advantage should also remain intact. In one regard, low-fare airlines are more affected than their legacy rivals. Many of them have tried to maintain high growth rates to establish some critical mass before shifting into a more sustainable development mode. That growth has partly been achieved by pricing below cost. But with costs moving upward, many carriers can no longer afford to stimulate the market with a large number of low-fare tickets. On the other hand, many of them had already left their initial start-up phase behind them, thus keeping growth more controlled than before.

The higher base of operating costs also leads many carriers to become more innovative in terms of ancillary revenues. The more they succeed in selling cell phone roaming time, more legroom in exit rows, window seats or priority boarding, the less pressure they feel to raise base ticket prices. But there is also a risk in overextending these ancillary schemes. Charging for checked bags and other money-making schemes have aroused the animosity of passengers. Of course, inventing new charges is not limited to low-fare airlines, as customers of U.S. legacy airlines will have noticed.

Others in the industry also see a more balanced situation. "Low-cost airlines do not mean weak airlines," stresses Louis Gallois, CEO of Airbus parent EADS. Airbus has about 30% of its total aircraft backlog placed with low-fare airlines, and estimates that its rival, Boeing, has 24% tied to this particular market.

And while there have been some low-fare carriers among the more than 25 airlines that have gone out of business this year, there's been little to indicate that they dominate. Columbus, Ohio-based Skybus is among the more notable exceptions and it also highlights what aircraft makers have at stake. Skybus had ordered 65 A319s. The airline, so far, is attempting to hold on to the delivery position as it tries to resell them, whereas Airbus wants them back in order to control asset allocation. In general, Airbus and Boeing officials have said that they have customers waiting to take-up delivery positions made available by original buyers going out of business, canceling an order or deferring delivery.

That low-fare carriers around the world have been aggressive in controlling capacity is without question. In fact, to a large extent the likes of Ryanair and EasyJet have been far more proactive in adjusting to the fuel-hike and economic slowdown-induced financial headwind, announcing capacity adjustments far ahead of network carriers. EasyJet is trying to unload some of its least fuel-efficient aircraft, while Ryanair is parking airplanes during the winter months.