The alternative to cutting back on federal regulation of the airline industry is to increase it substantially in order to keep costs and prices down, Sen. Edward M. Kennedy (D-Mass.) warned yesterday.

In a speech to the Society of Automotive Engineers national air transportation conference, he predicted the carriers would like more regulation even less than they now say they would like less regulation.

Under current law, the carriers have been "half salve and half free," with the government regulating price but allowing other decisions to remain by and large in the hands of management.

With the full, public utility-type regulation that is the only politically viable alternative to reduced regulation, Kennedy said, the regulators would be forced to make more decisions in order to control costs and keep fares down. He said the costs of flying with unsold seats would have to be given particular attention.

"It could control costs by controlling scheduling so that planes are reasonably full before they take off," he said. "And it could do so by striking from the rate base all cost attributable to flying too many empty seats." Regulation could further extend to the carriers' decisions on whether to buy new airplanes.

This type of regulations, if it kept prices down, might satisfy most travelers, Kennedy said. But it would put airline management "under an even heavier regulatory burden and wrap their proposals in even tighter procedural knots" than those of which they now complain.

Kennedy, who is a co-sponsor with Senate Aviation chairman Sen. Howard W. Cannon (D-Nev.) of legislation to reduce airline regulation, also criticized the lobbying efforts of the airline industry in support of the status quo.