(FORTUNE Magazine) – A quarter-century after deregulation rocked America's airlines, the pieces are finally in place for that tarnished experiment to deliver on its promise. The people who should have been in charge all along--business customers--are poised to grab the joystick from the longtime rulers of the skies: the pilots, mechanics, and other overpaid workers who reversed the normal economic formula by imposing exorbitant fares on battered road warriors.

Surprisingly, it's United Airlines' bankruptcy, funereal as it may sound, that promises to put the customer in the cockpit. The Chapter 11 filing will give United immense sway over its unions. It could unleash a pattern of industrywide pay reductions that will lead to an era of low fares and lean, healthy carriers. "The majors will go through restructurings and emerge as strong competitors," says Jonathan Ornstein, CEO of Mesa Air Group, a regional carrier. "If these guys get fixed, watch out."

The chance that the airlines will get fixed is better now than at any time since the federal government dismantled its control over the industry in 1978 in an effort to foster competition. Two new forces are pressing the carriers to cut costs and prices. The first is the revolt of the business customer. Between 1999 and 2001, those halcyon bubble days, business fares rose 50% as flush companies willingly paid astronomical ticket prices. Reckoning that the high fares presaged a long-lasting period of prosperity, the major airlines bought union peace with expensive labor contracts. The worst offender was employee-owned United. By manipulating hand-picked, docile management, the unions--which held two board seats and veto power over the choice of CEO--made sure that United led the industry in pay. When the bubble burst and the economy cooled, the majors clung to their boom-time fares; United still charges more than $1,200 for some walk-up fares between Chicago and Los Angeles. But with business travel in a nosedive, revenues are collapsing. This year the industry will lose about $8 billion.

The second force pressuring the airlines to restructure is the rise of the discounters, whose labor costs are 30% to 40% lower. The high fares charged by the major carriers in the late 1990s actually gave low-cost airlines like Southwest and JetBlue the opening to operate the way deregulation intended: by making money with bargain prices. Today one in four tickets sold is on a discount airline.

The business-class rebellion and the rise of discounters means that the majors must fly in one of two directions. Either they will achieve draconian labor-cost reductions and emerge far stronger, or a few airlines will disappear, leaving four to five survivors in a quasi-oligopoly that will perpetuate high fares. Right now the first scenario is more likely. "I'd give the majors a 60% to 70% chance of restructuring successfully," says Kevin Mitchell, chief of the Business Travel Coalition, a group that represents corporate travel managers.

Why such optimism? The B-word. Right now two majors out of six, United and US Airways, are in bankruptcy. The possibility of Chapter 11 could concentrate minds at the likes of American and Delta. In bankruptcy, management and labor first try to reach a quick, voluntary agreement on pay cuts. Given United's bitter relations with its unions, that probably won't happen. Then, subject to a bankruptcy judge's approval, management can make the steep cuts it deems necessary to be competitive. Mitchell estimates that United pilots and mechanics could be looking at 20% to 25% cuts in pay.

Union members would be far better served taking that pay cut than losing their jobs (yet given the troubled history between workers and management, it's no sure bet that unions will behave rationally). A new United, stripped of employee ownership and operating with far lower costs, would pressure competitors to pare expenses and match fares. American, for example, is renegotiating pilot contracts as part of a campaign to cut its overall costs by $3 billion to $4 billion a year. And already American has reduced last-minute fares by 40% on 23 routes, including Dallas to Los Angeles, and Dallas to Seattle. American hopes the increase in traffic, combined with lower costs, will make it a model for the industry. At long last it's a formula that puts the customer in charge. And that's what deregulation, that noble experiment, was supposed to do all along.

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