Airlines Face Record Losses After Attacks
Thursday September 13, 3:26 pm Eastern Time
By Ben Hirschler and Brad Dorfman
LONDON/CHICAGO (Reuters) - The world's airline industry warned on Thursday it faced record losses in 2001 following this week's devastating terror attacks in the United States, and one analyst said some U.S. carriers may even go bankrupt.
Reduced demand as people avoid air travel and likely higher security and jet fuel costs will add to the woes of an industry already struggling with a downturn in business travel due to the global economic slowdown.
The International Air Transport Association, an association of 266 member airlines, estimated immediate revenue losses and extra costs for the industry at $10 billion.
``This is a ballpark figure, but we could be talking about immediate losses of $10 billion this week alone. There could be a ripple effect, too,'' William Gaillard, an IATA spokesman, told Reuters in Geneva. He said the association had forecast $2.8 billion in loses prior to the attacks.
After a two-day nationwide grounding, the United States on Thursday reopened its air space under extremely tight security, allowing flights to resume at 11 a.m. EDT on a case-by-case basis after airports implemented new security measures. Some carriers were slow to start flying again.
UAL Corp.'s (NYSE:UAL - news) United Airlines said Thursday it would not resume operations until Friday morning and would maintain a reduced schedule throughout the weekend. British Airways Plc (quote from Yahoo! UK & Ireland: BAY.L), Europe's biggest airline, said its U.S.-bound flights remained canceled pending details on new U.S. security arrangements.
About 4,000 of the world's 12,000 commercial airlines have been grounded since Tuesday's attacks. The U.S. market is worth about $1 billion per day, according to IATA.
Investment analysts at Schroders Salomon Smith Barney downgraded shares across the entire European aviation industry and said the attacks were ``likely to have a catastrophic effect on European airline profitability.''
Samuel Buttrick, an airline industry analyst at UBS Warburg, said the impact on the U.S. airline industry could be $2.1 billion, leading to a record loss of $4.4 billion when coupled with other issues.
``Not all airlines will make it outside of bankruptcy protection,'' Buttrick said in a research report.
Even that preliminary estimate assumes reasonably normal service is under way by the weekend, while some travel experts don't see a return to normalcy in the U.S. airline industry until sometime next week.
BIGGEST WOES SINCE GULF WAR
Many in the industry are braced for a rerun of market conditions seen after the 1991 Gulf War when many people shunned air travel, and tough security is expected to worsen congestion in terminals, probably forcing the most over-stretched airports to cut peak-hour flights.
Terry Trippler, airline industry expert at online travel service OneTravel.com, noted that business travel fell sharply for three or four weeks after the start of the Gulf War, ``and that was just a perceived threat,'' he said, contrasting that to actual hijackings Tuesday.
Joseph Schwieterman, director of the Chadick Institute at DePaul University in Chicago, which follows airline marketing, estimated that it could take another week for travel to get back to normal. At that point, airlines will be scrambling to attract customers back, he said.
``This will exert strong downward pressure on pricing,'' he said. ``This makes additional discounting almost inevitable as the industry tries to get on its feet.''
One small, already unprofitable U.S. carrier, Midway Airlines, gave up the struggle on Wednesday, saying it was going out of business.
And ratings agency Standard & Poor's put its long-term corporate credit ratings on all U.S. airlines on negative CreditWatch on Thursday, along with BA and Air Canada (Toronto:AC.TO - news), both of which rely heavily on traffic to the U.S.
AIRCRAFT DEMAND TO WORSEN
The losses by airlines are also expected to put further pressure on the aerospace industry. Bear, Stearns on Thursday forecast that demand for commercial airplanes will fall below previous estimates, with production in 2003 possibly falling by more than 10 percent. There could be a downside risk of 15 to 20 percent on Boeing Co.'s (NYSE:BA - news) stock price.
Even when the industry returns to normal, tourist demand is expected to be weak.
``So many people have canceled their holidays,'' said agent Louise Lee in Hong Kong. ``They are so scared ... Except for business people, nobody wants to go.''
Even in good times airlines are extremely vulnerable to higher costs, because they typically retain only about three percent of their revenue as profit.
While U.S. share trading remains suspended, airline shares generally slumped elsewhere, continuing a rout that started immediately after the deadly attacks in New York and Washington on Tuesday. Massive falls in U.S. airline stocks are expected when trading resumes there.
Shares in BA, which has great exposure to transatlantic services, slid 5.8 percent on Thursday to 196 pence, compounding losses on Tuesday and Wednesday, and reaching 10-year lows. Lufthansa was down, too, shedding 1.7 percent to 12.40.
(Additional reporting by Stephanie Nebehay in Geneva and Bradley Perrett in Singapore) |
