LCC Will Likely Follow Just One Of Those Routes

Saying the domestic airline industry hasn't yet realized the surge in fuel prices isn't just a short-term spike, Southwest Airlines CEO Gary Kelly forecasts higher fares ahead... and mergers among the airline's legacy rivals.

"It feels like fares will need to continue to rise on an annual basis because costs are escalating rapidly," Kelly (above) said at the Reuters Aerospace and Defense Summit in Washington.

Kelly added those higher fuel prices, combined with signs of a downturn in the US economy, may very well lead to the kind of strife many airlines experienced in the years before 2006, when air travel began to rebound.

"There is a lot of peril that remains," Kelly said, adding the sharp increase in the cost of oil "isn't a spike. We're at a new level. The industry hasn't adjusted to it yet. We haven't adjusted to it yet."

When that time comes, Kelly adds, carriers will have to look to each other to survive... making mergers inevitable, in his eyes.

"You will have a recession some time, and the impact on the airline industry will be dramatic," said Kelly. "All of that leads to consolidation, I think."

FMI: www.southwest.com