(FORTUNE Magazine) – MAYBE HELL is customized, a place where errant souls endure the very torments they most feared on earth. If so, and if you happen to fly a lot, your version of eternal damnation may go something like this: You are wedged into a center seat on a runway in some heartland airport that holds the summer's heat real well, maybe that of Houston or St. Louis. On either side of you swell large, sullen businessmen who stab fitfully at their PowerBooks and whack away at your rib cage with stilettolike elbows. The pilot periodically mumbles bad news into the PA system, and flight attendants drift through the cabin with murderous eyes. Somewhere to the rear, a small child screams maniacally. You will stay right there for all eternity, sweating heavily, while what's left of your sanity drains out onto the tarmac.

The scary part is how often this nightmare matches reality these days. The reason is simple: The U.S. airline industry is in big, big trouble. Since January 1, 1990, the nation's commercial carriers have lost over $10 billion, far more than the industry earned during its entire 60-year history up until then. The losses continued to mount during the first quarter of 1993. Two large airlines representing about 9% of the industry's capacity -- TWA and America West -- are currently in bankruptcy, while Continental, with nearly 10%, has just come out of Chapter 11. The major bond-rating agencies have downgraded virtually all airline debt offerings to junk status. Among the major airlines, only relatively small Southwest has managed to consistently eke out a small profit, this by keeping costs low and offering few-frills service. It's not hard to figure out why the tide of red ink is rising. Since 1982, costs such as labor and fuel have more than doubled at most carriers. But over the same period, persistent overcapacity, which fuels suicidal price wars as airlines battle to fill seats, has lowered the average price per mile flown by nearly 25%, after inflation. Ruefully regretting his 1989 plunge into USAir stock, superinvestor Warren Buffett declared in his latest letter to shareholders, ''I knew the industry would be ruggedly competitive, but I did not expect its leaders to engage in extended kamikaze behavior.'' Don't look for the madness to end soon. Though a bout of spring fever sent airline stock prices spiraling upward some 10% in early April, that rally reflected a premature conviction on Wall Street and among some airline watchers that the industry's self-destructive discounting was a thing of the past. By early May the carriers were back running to form. Northwest slashed most fares 35% on some routes, the other majors matched the cuts -- and airline stock prices fell sharply. Veteran airline analyst Michael Derchin of NatWest Securities now estimates that the industry as a whole will remain unprofitable through 1993 -- and will only break into the black in 1994 if fuel prices remain stable. When will America's airlines get off the ground again? What will it take? And how might their recovery affect consumers? To assess the airlines' woes, the ever hyperactive Clinton Administration has put together a 15-person special commission and charged it with making recommendations by mid-summer. As that panel will quickly discover, virtually every industry leader agrees on the basic solution: Do away with deep-dish bargains. Says Delta Air Lines Chairman Ronald Allen: ''Sometimes we seem to learn the same lesson over and over again. But we cannot keep giving away our product and expect to stay in business for very long.'' What the industry titans dispute -- and passionately -- is who's to blame for the lack of pricing discipline and how best to make said pricing rational. On one side stand the so-called Big Three airlines -- American, United, and Delta. They maintain that the bankruptcy courts are at fault for allowing insolvent carriers a seemingly limitless period to reorganize. In the process, they argue, the weak airlines have periodically touched off insane price wars to get a few quick bucks into their empty coffers. Says American Airlines' Robert Crandall, the fiery head of the biggest of the Big Three: ''It's very simple: We have competed and some people have failed -- but they didn't go away as you would expect.'' Propwash, contend the bosses of the non-Big Three airlines. USAir Chairman Seth Schofield heatedly observes that despite signs that traffic growth was slowing as the Gulf war heated up and the global economy slumped, American, Delta, and United have increased the number of seats in their fleets by roughly 35% since 1990, vs. about a 10% rise among the rest of the airlines. Says Schofield: ''In total, the U.S. industry has added 700 new aircraft in the past three years during the most serious economic recession it has ever experienced. It does not take a rocket scientist to figure out why we're in trouble.'' WHO'S RIGHT? Both sides have a point. A new and independent study by Aviation Forecasting & Economics, an Arlington, Virginia, consulting firm, likens the bankrupt carriers to a virus that will eventually infect the entire industry. Example: From 1988 to 1991, Delta frittered away about $700 million trying to match Eastern's low fares during that now defunct airline's final years of operation. Such competition hurts healthy giants more than the bankrupts because the big boys' labor costs are typically far higher. Aviation Forecasting's study fingers another culprit that contributed to the bankrupts' woes: the proliferation of highly leveraged buyouts and mergers in the late 1980s, like those for TWA and Continental. Such deals added about $2 billion a year in debt service to the industry's collective balance sheet. ''A lot of dealmakers jumped into this business and were quickly way over their heads,'' says Darryl Jenkins, an airline economist and the study's co-author. His conclusion: The government should tighten financial requirements before allowing insolvent carriers to continue flying. As for their rapid buildup, the Big Three argue that it's necessary if they're to stay competitive. Though capacity has grown, average labor costs have declined as new employees have come aboard at lower wage scales. Bob Crandall points out that airlines benefit disproportionately when they offer additional frequency on popular routes. Folks who fly a lot between, say, Chicago and New York come to rely on a single carrier that offers a multitude of flight times and the promise of bountiful frequent-flier miles, so airlines tend to throw a lot of weight onto such routes in hopes of achieving dominance. Says Crandall: ''Capacity is how we compete in this business.'' Even so, the major carriers' expansion plans of the early 1990s were clearly too optimistic. What's less clear is whether, as critics charge, they were also part of a Machiavellian scheme by the Big Three to drive weaker carriers out of business and eventually divide up the spoils. Michael Conway, chairman of America West, the bankrupt Phoenix airline, is one who subscribes to this conspiracy theory. The problem began a few years back, he maintains, when the Reagan Administration started permitting the sale to the highest bidder of landing slots and gates at congested airports. Later, the Justice Department approved mergers that allowed a single carrier to dominate a particular market. In Conway's view, such policies handed deep-pocket airlines an unfair advantage -- one they have continued to exploit. ''They have used every weapon they can to make it a pure game of staying power,'' he says. ''A wall is now being built around the consumer, who is certainly going to be gouged.'' As one piece of evidence, Conway cites the period from August to October 1991, when the Gulf war tripled the price of aviation fuel. Conway claims that the Big Three raised no complaint because they were hoping their weaker competitors would be killed off. Whether or not that's true, Conway is right when he notes that for all the howls of outrage by the Big Three over price cutting, they have themselves launched many of the fare wars of recent vintage. As policymakers in Washington struggle to unravel this mess, they will likely cast a cold eye on calls by the Big Three to perform triage on the industry to force weaker carriers out of the skies. For one thing, TWA, Continental, and America West currently employ about 75,000 people -- a significant fact in today's job-conscious capital.

Any too-rapid shrinkage of the industry would also set off alarm bells among groups looking out for consumers. Despite the airlines' awful financial state, the Justice Department saw fit to bring a big price-fixing suit against the industry right after the election. Representative James L. Oberstar, the Minnesota Democrat who heads the House Aviation subcommittee, worries about excessive concentration brought about by the failure of onetime biggies like Pan Am and Eastern as well as by the eventual collapse of virtually every small carrier with national ambitions that started up after deregulation. Says he: ''American would like to shoot the wounded and Crandallize the industry, but I'm not at all sure that's what is best for the flying public. This industry remains highly competitive with nine major carriers. But would it stay that way if we got down to five or six or even fewer?'' What such worries suggest is that even if the airlines manage to avoid their usual internecine struggles over ticket prices, they will have to move gingerly in their effort to raise prices. Any sizable across-the-board increase would also bring squawks from business travelers, who account for about 60% of the industry's revenues. Last spring, American initiated a so- called value pricing system that basically did away with most large corporate discounts. Other big carriers followed, and companies that had become accustomed to 40% or 45% discounts were suddenly asked to pay full fare. The plan backfired in a major way, with business travel dropping up to 12% at some carriers. Most airlines are again offering favored customers discount packages, albeit more modest ones. But many corporate travel managers still express outrage over the rising price of tickets. Says Norman Sherlock, executive director of the National Business Travel Association, the main lobbying group for corporate travel managers: ''It's just not the same old scenario, because these days control of travel costs has become critical to the bottom line. Companies can't just expand their travel budgets to meet these new costs -- they are not the federal government.'' More companies are resorting to teleconferencing and videoconferencing as alternatives, says Sherlock, and they are also looking at new ways to cut down on nonessential travel. He points to Price Waterhouse, whose corporate travel managers are now sending training consultants to where the workers are instead of the other way around. The real problem, argues Sherlock, is that carriers are trying to force business to pay sky-high rates to make up for the absurdly low prices offered leisure travelers during fare wars. HIS ORGANIZATION has gone so far as to call for a government-mandated floor on leisure fares. Under the group's plan, carriers would be forced to cut way back on the differential between average business and leisure fares, which Sherlock says currently stands at about 4 to 1. Such a scheme, which would in effect dictate widespread fare increases for leisure travelers, has no chance of gaining favor with the airlines. Nor will the new commission appointed by President Clinton -- or any other body remotely connected with political life in Washington -- likely endorse it. The Federal Trade Commission has estimated that the American flying public has saved about $1 billion annually since deregulation began. As a result, even in a capital experiencing a resurgence in the belief that government should have a greater role in the nation's affairs, sentiment for the old days of regulated routes and fares has pretty much dried up. Instead, the Clinton commission is likely to recommend nothing more than some short-term tax and regulatory relief for the airlines. The federal ticket tax, which airlines have trouble passing along to the public because of competitive pressures, was raised from 8% to 10% in 1990, and 81 airports now impose so-called passenger-facility charges on top of that. New FAA security rules, such as a requirement that random drug tests be conducted on half of all airline employees annually, have piled on millions more in costs with questionable benefit. (The airlines argue persuasively that testing only 10% or 20% of workers would deliver the same deterrent -- and save lots of time and money.) And now comes Clinton's proposed energy tax, which could add $300 million a year in new expenses at some carriers. Reducing taxes and bureaucracy will help at the margin. But in the end the only sure way to right this industry's wrongs, as Washington seems to agree, is to let free-market forces squeeze out overcapacity. Those forces are clearly at work today, and in ways few would have predicted not long ago. Delta recently grounded 28 planes and laid off 600 pilots, the first permanent work force reduction in its history. United is talking about withdrawing from some unprofitable shorter routes and turning them over to large commuter lines. American is considering the sale of its brand-new terminal and hub in Raleigh, North Carolina. Says Delta's Ronald Allen: ''There is no question that we have a sick industry on our hands, and I believe we may all have to redefine what it is we hope to accomplish.'' Prospects for the less healthy members of the industry are dim. Even after emerging from Chapter 11, the bankrupt carriers will have trouble attracting the capital they need to upgrade their fleets and ground facilities. They will also have a tough time overcoming the negative image their woes have created among consumers. What this coming shakeout will eventually mean for the flying public can be stated in two words: higher fares. Says Patrick Murphy, acting assistant secretary of transportation for policy: ''There's a lot of advice out there about what this industry needs to do, and a lot of it is self-serving. But one thing is quite clear: Prices absolutely have to go up.'' While occasional price wars will continue to break out even in a shrunken industry, they will flare up far less frequently. As compensation, might fliers at least hope to enjoy more attentive service in the rest of the decade and beyond? Don't count on it. Amenities like better food and greater legroom carve deeply into profits, and employees facing layoffs and pay cuts are unlikely to be in a pampering mood. In short, the nightmare continues.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCE: AIR TRANSPORT ASSOCIATION CAPTION: EARNINGS TAKE A NOSEDIVE

CHART: NOT AVAILABLE CREDIT: FORTUNE TABLE/SOURCE: AIR TRANSPORT ASSOCIATION CAPTION: THE TEN BIGGEST. . .AND THEIR PAIN