Industry consolidation will likely occur, but not until the credit markets recover from the sub-prime mortgage mess. Large institutional investors often indirectly fund large mergers, and many of them have been burned and are pulling their money out of risky investments. Airline profits are notoriously sensitive to economic downturns and with oil prices on the rise and an imminent slowing of the U.S. economy, M&A money is on the sidelines waiting to see what happens.
When the time is right and the capital is available, I'm sure we will see additional mergers and the airline business will follow the Big 3 automakers and the major oil companies in limiting choice and price which will only benefit Wall Street and those who provide the money for the mergers.