HOW HIGH CAN THEY FLY?

It may be scant consolation to frequent flyers coping with Ouija-board ticket prices, jammed cabins and Munchkin-friendly coach seats, but the U.S. airline industry has reached cruising altitude. Last year it posted a $2.5 billion profit. Compare that with the $13 billion in losses the carriers had piled up since 1990--roughly equivalent to all the profits earned in the history of American commercial aviation--and the industry ought to be smiling, or at least unbuckling its seat belt and raising a $5 martini in a plastic cup.

Instead, the major carriers can see something potentially distressing: a swarm of alien aircraft invading the domestic market. These planes belong to the latest wave of upstart airlines hoping to succeed where so many predecessors--161 in the 18 years since deregulation--have plowed under. During that time, the economics of the industry has been tossed around like so much paper in jetwash. And airfares have followed suit. Prices have taken off in "fortress" markets like Denver, where one or two majors have pounded competitors; in California, where the terminals are more crowded, the fares have sunk low enough to give the bus company fits--and ensure losses for nearly everybody.

Twenty-five airlines have started up in the past seven years, and eight more are awaiting clearance from the Department of Transportation. They sport such names as Frontier, ValuJet, Air 21, Vanguard, Nations Air, KIWI and Western Pacific, and they promise that the competition is going to be different this time. They have staked their survival on two basic strategies. First, fly into a place, like Fresno, California, that the major carriers have largely abandoned. Second, don't pick the big guys' pockets; use low-fare, no-frills flights to expand the market. The idea isn't to steal market share but to create a bigger, two-tiered market.

So far, there's been airspace for everyone, although not without a few elbows being thrown. Lee Howard, president of Airline Economics International Inc., an industry consulting firm, estimates that 15% of domestic air traffic is now hauled by low-cost airlines, up from 10% little more than a year ago. According to Glenn Engel, an airline analyst at Goldman Sachs, the no-frills upstarts had revenues last year of $6 billion (out of an industry total of $75 billion to $80 billion), in contrast to $3 billion in 1991.

The upstart airlines are merely sweeping up the crumbs abandoned by the majors, carrying 15% of the passengers for less than 10% of the gross. But at some point, perhaps this summer, the fledglings' growth will run smack up against the majors' need to protect or expand revenues. When that happens, says Michael Boyd, president of Aviation Systems Research Corp. in Golden, Colorado, the skies may grow turbulent again. "If the majors find their core market being taken [by the upstarts]," he says, "they will turn on them." Already Northwest and American have started to discount. Rising fuel prices could turn summer into a season of melting profits.