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'The situation is grim."

This is probably not what travellers wanted to hear from Giovanni Bisignani, head of the International Air Transport Association, when he announced a few weeks ago that the world's airlines could lose as much as $6-billion this year.

But his words came as no surprise to anyone watching the industry's current crisis. Because of an unprecedented spike in fuel costs, Air Canada announced last week that it would be cutting its fall and winter schedules, retiring some older, gas-guzzling planes and cutting about 2,000 jobs - measures that are just following the lead of such U.S. legacy carriers as American Airlines, Continental and United. Late last month, all-business airline Silverjet joined about two dozen carriers that have closed shop this year. And Delta and Northwest are merging into the world's largest airline - a move that critics say will inevitably lead to less competition and higher fares.

Some of the fallout is already obvious. You have probably been on a recent flight where you paid extra for that seat next to the emergency exit or to take on a second bag. American now plans to charge most economy passengers $15 each way for their first checked bag as well. Just two weeks ago, one aviation expert claimed that an Asian carrier had been considering charging by weight - as in body weight.

Earlier this month, six major U.S. carriers - American, United, Delta, Northwest, Continental and US Airways - boosted prices again on less competitive domestic routes; on some, the most inexpensive tickets available next month cost 100 to 300 per cent more than last year.

And that's if you can even find a flight to your destination. A number of U.S. airlines are cutting unprofitable routes, leaving some smaller airports without scheduled service at all. Air Canada has already cut its service from Calgary to Prince George, B.C., and will suspend service to Rome and Osaka this fall. Even the carrier's busiest routes, such as Montreal-Toronto, could see a reduction in flight frequencies or could be serviced by smaller planes.

Grim, indeed.

So what does all this mean for business travellers who have to hop from Montreal to New York on a moment's notice? Or for Canadians planning summer holidays or even a Christmas visit? Should you book in advance, while oil is still under $140 a barrel, and hope the airline will still be around? Should you wait for seat sales?

For many Canadian travellers, it's not panic time yet.

Dianne McGowan of Brampton, Ont., has been spending as much as a month each winter in Mexico with her husband, John, and doesn't plan to do anything differently this year.

"Everything is priced in U.S. dollars, so the strong Canadian dollar has really made a difference," she says.

And business travellers are still hitting the road. Donald McLean of Synergi Global Travel Management says he has seen no change at all. "An extra $90 isn't going to keep someone at home. For corporate Canada, that's coffee money."

In a recent American Express survey of senior financial executives, 74 per cent of Canadian respondents said domestic travel would stay the same or increase over the next year. Vice-president Andrew Pilkington said that "in Canada the mood is far more optimistic about domestic economic prospects than in the U.S."

But the gorilla in the room is the price of jet fuel, which is "the biggest threat to the world's airlines ever," according to Henry Harteveldt, an analyst at Forrester Research. "We have to accept the fact that air transportation is probably going back to being something for higher-income people. It's the end of an era."

Maybe that's overstating the case. At least some airlines are responding to the current crisis with limited-time seat sales to keep passengers flying.

Two weeks ago, WestJet had a two-day sale offering 50 to 75 per cent off flights. And carriers such as Sunwing Airlines (Toronto to Halifax, Calgary and Edmonton), Porter Airlines (Toronto to Halifax) and Air New Zealand (Vancouver to South Australia) have had long-term deals on offer.

Though if you see a fare that looks good, grab it - airlines are increasingly dropping routes if they can't fill planes.

For more reliable savings, Air Canada flight passes and subscription services are an increasingly popular option for frequent fliers. Company president and chief executive officer Montie Brewer says sales were up 64 per cent year in the last quarter over the year before. What they offer: unlimited travel to destinations across Canada and over the border, as well as multi-trip passes for Western Canada-U.S. flights. Shuttling back and forth in Ontario or Quebec, for example, costs about $1,099 this July and August - and pass prices include the fuel surcharge and all other fees and surcharges other than the GST and QST.

But if you do buy a seat on sale or commit to an unlimited flight pass, should you be worried that the carrier won't be around a few months down the road?

Airlines such as Air Canada and WestJet have remained impressively profitable despite the problems across the industry, and the same goes for Lufthansa, British Airways, Air France/KLM and Ryanair.

If you're uncertain about the financial stability of the carrier, simply use a credit card when you book your flight; you can request a charge back if the travel services you buy are not delivered.

Residents of Ontario, Quebec and British Columbia are also covered to a certain extent if they book through a registered travel agent. In Ontario, for instance, you can claim up to $5,000 a person if an airline goes under - to a maximum of $5-million a failure from an industry-financed compensation fund. (If the fund got hit with a $10-million claim from a single failure, it would pay only 50 cents on the dollar.)

Unfortunately, despite some lobbying from the travel industry, the federal government does not require scheduled carriers to compensate stranded passengers in the case of a failure, and there is no national fund to protect consumers.

But despite such uncertainties, Canadians have been travelling in record numbers in the past few years - and the price of oil is going to have to climb a lot higher to stop them.