"Unless you are a highly risk-tolerant investor, avoid airline stocks," said Brian Hayward, airline analyst at Zacks Investment Research in Chicago. "There will be trading opportunities. If you think you're good enough to trade on where oil is going to go, and you think you're nimble enough to trade on that information, good luck."

Long a cyclical industry, airlines have had trouble making money for decades, but were especially hard hit after the Sept. 11, 2001, terrorist attacks. Passenger counts finally climbed back to pre-Sept. 11 levels during the fourth quarter of 2004. But airline stocks have plunged since Jan. 1 amid weak earnings and word that Delta was cutting fares dramatically in an effort to lure back bargain-hunting business fliers.

The losses, as measured by the American Stock Exchange Airline Index (XAL), only deepened as competing carriers rushed to match Delta's price action, which cut the most expensive fares by up to half and eliminated Saturday night stay requirements. In the days following the news, the index sank 14.21 percent.

Delta's pricing action, a direct result of competition from successful low-cost carriers such as AirTran, JetBlue Airways Corp. and Southwest Airlines Inc., will likely accelerate industry restructuring, said Smith Barney analyst Daniel McKenzie. When it comes to determining which companies will survive, cash flow will be key, he said.

"It is no coincidence we are seeing simplified pricing. It was inevitable for the industry, given the aggressive growth of low-cost carriers," McKenzie said. "There's probably been no carrier in history that has struck as much terror in the corporate offices of the cyclical majors as JetBlue. That's what Delta has to respond to."

Hub fundamentals combined with cost structure will determine the long-term winners, McKenzie said. But in the short term, a big question for analysts is what impact the price changes will have on airline profits; it has not been factored into earnings estimates yet.

Fuel costs also remain a wild card. If crude oil prices soar back to the $55 range, it would increase bankruptcy risk for all the major airlines, McKenzie said. As it is, American narrowly escaped filing for bankruptcy in 2003 and Delta avoided it late last year, thanks to new financing and fresh labor concessions. In bankruptcy court now are United and US Airways, which is just days away from the possible liquidation of its assets unless it receives concessions from its labor unions.

If one of the big carriers did go out of business, it would actually help the remaining airlines survive. Almost everyone agrees the biggest problem facing the industry is excess capacity — too many seats in the sky.

For the legacy airlines, although they've won concessions from workers, it's increasingly difficult to compete on cost with such growth carriers as JetBlue and Southwest, which has the most consistent record of profitability in the industry. Because of this, analysts say, the low-cost carriers are better positioned to withstand all manner of pressure, whether it comes in the form of a price war or higher fuel costs.

McKenzie sees some buying opportunities for long-term investors who are prepared for a bumpy ride; Alaska Air Group Inc. is his top pick for the sector.