spitfire1940
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Trade Group: War Plus Terror Could Be Airlines' Death Knell
By Eric Gillin
Staff Reporter
03/11/2003 02:37 PM EST
Updated from 12:45 p.m. EST
If a war with Iraq were followed by a large-scale terror attack, the U.S. airline industry's survival would be imperiled, a trade group warned Tuesday.
The Air Transport Association estimates that an Iraqi war combined with a terrorist attack could cause another $13 billion in losses and cause an industrywide collapse.
The industry has already lost $20 billion over the two years.
"The mere prospect of war with Iraq has already further weakened this industry, which is literally struggling to survive," said the ATA's report. "The government can and should act with dispatch to reduce the burdens currently imposed on the airline industry."
A few weeks back, when the government raised the terrorist alert level to code orange, air travel advanced bookings fell by 20%. The carriers have been slashing prices, especially in international markets where skittish travelers are particularly wary, but demand is still sliding.
Wars are very bad for airlines. In the year after the first Gulf War, Eastern Airlines, Pan Am and Midway Airlines closed their doors forever. According to the report, it took the industry, which had reported net profits of nearly $4 billion from 1984 to 1989, four years to recover from a 50-day war.
But this time around, if the U.S. war against Iraq goes forward, and if terrorists manage to attack on a scope on par with the World Trade Center attacks, then, the report maintains, the industry could lose $13 billion and become insolvent overnight.
Such a scenario would result in 100,000 job cuts and the elimination of 3,800 flights serving small and medium-sized communities, which would cripple the hub-and-spoke model the legacy carriers use to drive traffic through larger airports.
Even if there's a war with Iraq without subsequent terrorism, the report concludes that the industry faces some serious risks. Under a scenario deemed "most likely" of those discussed, the report predicts industry losses of $10.7 billion, which would result in the cancellation of 2,200 flights and eliminate 70,000 jobs. Without a war losses will still be steep, with the industry racking up $6.7 billion in losses, following the $10 billion lost in 2002 and the $8 billion lost in 2001.
"The economic risks go far beyond the airline industry -- the stakes for the entire U.S. economy are very high," said ATA president and CEO James May. "Without government action, the outlook for the entire airline industry is bleak."
The report comes just days after the industry's largest player, AMR (AMR:NYSE - news - commentary - research - analysis), parent of American Airlines, warned it could be heading into bankruptcy if it can't pony up $4 billion in annual cost cuts. American would join the second-largest airline, UAL (UAL:NYSE - news - commentary - research - analysis), parent of United Airlines, and the seventh-largest airline, US Airways, in seeking Chapter 11 protection.
Shareholders dumped airline stocks in heavier-than-usual trading at midday Tuesday. AMR was a notable loser, dropping 21.6% to $1.89. Delta Air Lines (DAL:NYSE - news - commentary - research - analysis) dropped 18.4% to $7.07, while Northwest (NWAC:Nasdaq - news - commentary - research - analysis) fell 12.9% to $6.10. Continental was down 8% to $4.58, while Southwest Airlines (LUV:NYSE - news - commentary - research - analysis), the industry's only profitable major carrier, was off 2.4% to $12.70.
By Eric Gillin
Staff Reporter
03/11/2003 02:37 PM EST
Updated from 12:45 p.m. EST
If a war with Iraq were followed by a large-scale terror attack, the U.S. airline industry's survival would be imperiled, a trade group warned Tuesday.
The Air Transport Association estimates that an Iraqi war combined with a terrorist attack could cause another $13 billion in losses and cause an industrywide collapse.
The industry has already lost $20 billion over the two years.
"The mere prospect of war with Iraq has already further weakened this industry, which is literally struggling to survive," said the ATA's report. "The government can and should act with dispatch to reduce the burdens currently imposed on the airline industry."
A few weeks back, when the government raised the terrorist alert level to code orange, air travel advanced bookings fell by 20%. The carriers have been slashing prices, especially in international markets where skittish travelers are particularly wary, but demand is still sliding.
Wars are very bad for airlines. In the year after the first Gulf War, Eastern Airlines, Pan Am and Midway Airlines closed their doors forever. According to the report, it took the industry, which had reported net profits of nearly $4 billion from 1984 to 1989, four years to recover from a 50-day war.
But this time around, if the U.S. war against Iraq goes forward, and if terrorists manage to attack on a scope on par with the World Trade Center attacks, then, the report maintains, the industry could lose $13 billion and become insolvent overnight.
Such a scenario would result in 100,000 job cuts and the elimination of 3,800 flights serving small and medium-sized communities, which would cripple the hub-and-spoke model the legacy carriers use to drive traffic through larger airports.
Even if there's a war with Iraq without subsequent terrorism, the report concludes that the industry faces some serious risks. Under a scenario deemed "most likely" of those discussed, the report predicts industry losses of $10.7 billion, which would result in the cancellation of 2,200 flights and eliminate 70,000 jobs. Without a war losses will still be steep, with the industry racking up $6.7 billion in losses, following the $10 billion lost in 2002 and the $8 billion lost in 2001.
"The economic risks go far beyond the airline industry -- the stakes for the entire U.S. economy are very high," said ATA president and CEO James May. "Without government action, the outlook for the entire airline industry is bleak."
The report comes just days after the industry's largest player, AMR (AMR:NYSE - news - commentary - research - analysis), parent of American Airlines, warned it could be heading into bankruptcy if it can't pony up $4 billion in annual cost cuts. American would join the second-largest airline, UAL (UAL:NYSE - news - commentary - research - analysis), parent of United Airlines, and the seventh-largest airline, US Airways, in seeking Chapter 11 protection.
Shareholders dumped airline stocks in heavier-than-usual trading at midday Tuesday. AMR was a notable loser, dropping 21.6% to $1.89. Delta Air Lines (DAL:NYSE - news - commentary - research - analysis) dropped 18.4% to $7.07, while Northwest (NWAC:Nasdaq - news - commentary - research - analysis) fell 12.9% to $6.10. Continental was down 8% to $4.58, while Southwest Airlines (LUV:NYSE - news - commentary - research - analysis), the industry's only profitable major carrier, was off 2.4% to $12.70.
