No denying it: Combine astronomical jet fuel prices with a weak economy, and the U.S. airline industry faces severe financial challenges.

But does it lose its viability as a market-based enterprise? Some say yes and are calling for a return of regulation. The airline industry has been deregulated since 1978, a move that led to the rise of a number of low-cost carriers, heavy competition, lower airfares and more choices for consumers.

Deregulation also has made it more difficult for many airlines to survive.

One of the most prominent people calling for re-regulation is former American Airlines Chief Executive Robert Crandall.

"It is time to acknowledge that airlines look and are more like utilities than ordinary businesses," Crandall said during a speech June 10 at the Wings Club, an industry group in New York.

"I think a dollop of regulation, along with new government policies and appropriate investment, would help the carriers get back on the right track."

Politicians, including U.S. Rep. Steve Cohen (D-Tenn.), have suggested the idea of re-regulation, and labor unions, including the International Association of Machinists and the Air Line Pilots Association, argue that the federal government should step in to bring stability to the airline industry.

Others praise the benefits of deregulation.

Delta President and Chief Financial Officer Edward Bastian said he believes deregulation "has been a great success."

"Air travel today has never been more affordable and significantly lower in real dollar costs," Bastian said. "It's almost half what it was prior to deregulation."

AirTran general counsel Richard Magurno said deregulation allowed discount airlines such as his to develop and helped airline hubs such as Atlanta grow into economic powerhouses.

"In a regulated environment, AirTran would not be able to provide the deep-discounted fares that presently have exploded in the Atlanta market," Magurno said.

But Crandall believes deregulation has "worked poorly" in the airline industry.

"Market forces alone cannot and will not produce a satisfactory airline industry, which clearly needs some help to solve its pricing, cost and operating problems," he said.

He proposed regulation limiting airline schedules to address congestion; creating financial standards; addressing labor issues; managing bankruptcies; and revising antitrust laws.

Crandall suggested establishing a minimum-fare threshold.

He also proposed an alternative requiring passengers with connecting flights to pay the sum of what those fares would be if purchased as individual flights.

That would mean nonstop flights often might be cheaper than itineraries with a connection, while today nonstop flights are often more expensive. Flying nonstop is the cheapest way to carry passengers, Crandall said, and airlines face a need to increase their fuel efficiency.

It "turns the conventional wisdom about hubs on its head," Crandall said.

Such a dramatic change in the established hub-and-spoke airline system would affect major cities, such as Atlanta, that have grown because of their airport hubs, as well as rural areas that could end up with fewer flights —- or perhaps no service at all.

At a conference of airport executives in New Orleans earlier this month, "the anxiety and angst among airport managers large and small about the future of the industry —- it was palpable," said Roger Cohen, president of the Regional Airline Association, a Washington-based trade group representing small feeder airlines.

Many communities have an economy boosted by airline service, with Atlanta as a prime example, Cohen said.

"All that is in jeopardy," he said. "And the cascade effect of that on everything from manufacturing to tourism to traveling salesmen, it's just real scary."

AirTran's Magurno said with re-regulation "people are looking for some sort of easy solution that doesn't really address the problem.

"The problem is not regulation or deregulation of the airline industry. It's fuel prices," Magurno said. "What minimum fare covers $200 a barrel fuel? ... You raise fares until nobody can afford to travel."

"If the government would stand up and address the fuel issue, that would address the problem," Magurno said.

The Air Transport Association, an airline lobbying group that lists AirTran and Delta among its members, has called for regulation, not for themselves, but for the energy commodity futures market to control "excessive oil speculation."

"If Congress does not act soon, this country will not have a viable airline industry," Air Transport Association chief executive James May testified before a Senate committee this month.

Last week, Delta CEO Richard Anderson in a message to employees called on Congress to take action to control oil speculation.

Alfred Kahn, who as chairman of the federal Civil Aeronautics Board presided over deregulation in 1978, said that though airlines face challenges, "I just don't know what regulation would do."

To Kahn, the scenario in the airline industry today is akin to what he saw in 1977. "At a time when we were increasingly worried about the energy problem, I didn't view it as my highest aspiration to make it easy for people to jet all over the world cheaply," Kahn said.

The only way to preserve the level of airline service the public has come to expect, Kahn said, is to subsidize it. "And I'm not ready to subsidize it, especially given our energy problems. I'd rather subsidize rail transport or even bus transport."

Crandall, the former American CEO, predicted change will come.

"Our country's need for energy conservation and our airlines' need for profitability will inevitably generate an intensive search for new approaches," he said.

But at a Merrill Lynch conference this month, Northwest Airlines Chief Executive Doug Steenland didn't see re-regulation in the future.

"Anybody who looked at it [re-regulation] seriously, I think, has concluded that the genie is out of the bottle," he said, "and I don't think it can go back in."