American Airlines yesterday appeared to cross the Rubicon, asking its passengers to pay $15 (£7.60) to check in a bag when they arrive at the airport. What will be its next gambit? Perhaps, a $5 charge for using your laptop inflight, pay-per-view movies and coin-operated lavatories. AMR, the airline's parent announced yesterday that its new baggage fee, plus a whole raft of other service charges (flying your pet poodle will cost you more) would generate hundreds of millions of dollars in extra revenue.

How long will that keep the creditors at bay? For AMR and every other airline operator the soaring cost of jet fuel has exposed a fatal weakness for an industry that has been riding for years on a wing and a prayer.

It is not just some carriers that are in trouble; the business model of an entire industry is close to bust.

Since the end of January, the cost of the fuel that keeps planes in the air has risen by almost 60 per cent.

Even as the price of a tonne of jet fuel hit $1,350 per tonne in Rotterdam yesterday, airlines were still increasing capacity, adding more and bigger planes to their fleets and adding more routes.

North Atlantic traffic, the big earner for most airlines, has not been growing since January and Asian routes are similarly stuck in the doldrums but more planes are flying more kilometres every day, according to statistics from the Association of European Airlines. From January to May, capacity for scheduled European airlines rose by 3.5 per cent as traffic grew by 1.7 per cent.

It doesn't add up and yesterday, AMR admitted as much, announcing that its airline would shrink. The company will shed between 75 and 80 jets reducing the available seats by 12 per cent. In explanation, the company said that its jet fuel bill was $665million more in the first quarter than a year before - in other words, while fuel cost 45 per cent more, revenues rose by only 5 per cent.

British Airways said last week that it had been forced to contemplate the possibility of the £875million annual profit just reported being wiped out this year because of the rising oil price.

Airlines admit that they have no idea how much demand will be reduced by the fare increases they will be forced to make. But even if the impact is modest, the industry will be in real trouble.

“The airline industry was not built to withstand oil prices at $125 per barrel,” said Gerard Arpey, the chairman of APR, yesterday. Indeed, it is not and it is now clear that the game has changed utterly.

The airline industry was built in a fantasy world of cheap energy and ever expanding traffic that is gone, possibly forever. It is no longer about putting bums on seats but getting rid of the seats.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive