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U.S. airlines have posted nearly $11.5 billion in losses so far this year, and the first-quarter reporting period still has several weeks left to run.

With crude oil futures at $118 a barrel, consolidation among carriers isn’t going to save the industry. The idea that a merged airline would lower costs to offset the rising expense of jet fuel, or jet-A, sounds good, said aviation consultant Michael Boyd, except …. it isn’t true. The premise “leaves out the fact that mergers take a lot of time and money, and don’t do diddly to reduce the price of a gallon of jet-A.”

What it takes, analysts say, is a lower fuel bill. Or in two words: flying less.

The industry’s fuel expenses could rise to more than $15 billion in 2008, JPMorgan estimates. “All else equal, this will necessitate an industry capacity cut approaching 20%, a level that has never been quickly achieved absent liquidations.” Several discount airlines have already chosen bankruptcy, including ATA and SkyBus.

“While it may sound callous to frame fuel’s rapid ascent against the far greater tragedy of 9/11, the math is indisputable - at current fuel prices, a similar attack on the industry’s profitability appears underway,” JPMorgan analyst Jamie Baker wrote in a recent investor note.

Northwest and Delta, which have proposed merging, are responsible for the bulk of 2008’s first-quarter losses. They took small steps Wednesday toward cutting their seating capacity.

Delta will remove 15 to 20 mainline and 60 to 70 regional jet aircraft from its operations by the end of 2008; it said system capacity for the second half of 2008 would fall as much as 2% from 2007, with domestic capacity down 9% to 11%.

Northwest said that following the peak summer travel season it plans to reduce its scheduled domestic system capacity by 5% from its original 2008 plan, removing from service 15 to 20 aircraft.

Some 860 50-seat and smaller regional jets are expected to exit U.S. carrier fleets in the next 10 years, according to Boyd. “The declining economics of the aircraft mean a big percentage of these machines need to get retired toute suite. And that means retired. To the desert, mostly. Probably in even larger numbers, and much sooner, based on where jet-A is headed.”

A drop in gasoline consumption growth will probably continue even as the economy emerges from the current slowdown and gas prices slip back from record highs, according to a recent Department of Energy report.

“For the foreseeable future, demographic shifts, the impact of high [gas] prices on vehicle efficiency, and the more recent shift characterized by reduced impact of income on vehicle miles traveled are likely to keep growth in gasoline consumption well below that seen for much of the post-war period,” the Energy Information Administration report concluded.

The growth in demand for gas has been especially slow in recent years and is projected to decline by 0.3% in 2008 before picking up at 0.8% growth in 2009, the report found.

And in a change of heart for most drivers, record high gas prices now appear to be affecting consumption.

The impact of prices exacerbates a trend in recent years. As population growth has began to dwindle and an older fleet of less-fuel-efficient vehicles has been replaced by newer, less gas-hungry models, motor gasoline demand growth has began to slow. The aging of the baby boomers, who once took to the road in droves, has also helped bring down the demand for gas.

Now, the cost of filling up, which has doubled over the past three year, is contributing to weaker growth in gasoline demand.

The average gas price per gallon nationwide has climbed to $3.33, the AAA of Northern California reported Tuesday. In California, where motorists pay some of the highest gas prices in the 48 mainland states, the average price of gallon of gas has reached a record high of $3.72 . That’s $119 to fill up a Hummer, up from about $69 for the same amount of gas five years ago, the motorists’ advocate body said.

While the report’s authors were reluctant to argue for a long-term correlation between a miles traveled and disposable income, consumers appear to have cut back on travel once gas prices hit $2.50 per gallon, the EIA said.

All this will likely affect this summer’s driving season, and gas conmption across the second and third quarters of this year is projected at an average 9.4 million barrels a day, down 0.4% from summer last year.

From Target to Wal-Mart, from steak to chicken, from national brands to private label, and now from next day air to deferred and ground service, U.S. consumers, in the face of surging fuel prices and slumping home prices, are continuing to trade down.

Shares of United Parcel Service fell nearly 4% Wednesday after the Atlanta-based package-delivery giant slashed its first-quarter earnings outlook, citing “significantly” increased fuel costs and a weakening economy. In particular, UPS noted the tough macro environment has caused a “shift away” from its premium products, such as high-yielding next-day air, to lower-priced service such as deferred and ground shipping. The outlook echoed trends UPS highlighted at its March 12 investor day that it had seen more significant declines in premium products volume.

Surging fuel prices were also clearly a drag as average jet fuel and diesel prices jumped 11% and 8%, sequentially, said Raymond James analyst William Fisher. At current fuel prices, the Next Day Air fuel surcharge is now approaching 23% vs. only an about 7.5% surcharge on Ground, he said. “The widening disparity between the Next Day and Ground product are likely causing a ‘trade down’ from high contribution premium products to the lower contribution Ground product.”

The combination of high fuel costs, the impact of fuel surcharges (the inherent lag), and parcel carriers’ greater exposure to consumers will likely cause this trend to continue for several more quarters, JPMorgan analyst Thomas Wadewitz said. Wadewitz cuts his UPS 2008 earnings forecast to $4.05 a share from $4.35 a share Wednesday, saying that while he continues to believe UPS’s company specific story is attractive, upside drivers are unclear in the near term, and the challenging environment is likely to be a significant headwind for earnings growth and UPS stock over the next several quarters.