Here we go.(COMTEX)B: Airlines Fear War with Iraq Will Bury Major Carriers
B: Airlines Fear War with Iraq Will Bury Major Carriers
Mar 12, 2003 (The Orlando Sentinel - Knight Ridder/Tribune Business News via
COMTEX) -- A U.S. war in Iraq would reset the clock on travel's slow recovery
from the September 2001 terrorist attacks, pushing still more airlines into
bankruptcy, the nation's major carriers warned on Tuesday.
The Air Transport Association, which represents the biggest domestic airlines,
said a war could force its members to slash 2,200 more flights and 70,000 more
jobs, and would add another $4 billion to the industry's projected losses for
the year.
The Washington, D.C.-based trade group asked Congress for a one-year holiday
from security taxes, fees and other government mandates if a war starts. It also
wants the government to sell strategic oil stocks to reduce fuel prices.
But lawmakers may balk at the airlines' request.
Congress gave the airline industry $5 billion in cash when many people stopped
flying after the Sept. 11, 2001, attacks in New York and Washington, D.C. But
that relief package, which included $10 billion worth of loan guarantees, could
hurt the industry's chances of getting the $9 billion in tax cuts it says it
needs now.
"It's not to downplay the problems the aviation industry is having, but at what
point do you set a limit to how much you can give to one industry?" said Steve
Hansen, a spokesman for Rep. Don Young, R-Alaska, chairman of the House
Transportation Committee.
Another slump in travel would hurt everyone from cab drivers and travel agents
to hotels and theme parks, but analysts said the most vulnerable group may be
the country's airlines.
"Probably every single major airline is a candidate for bankruptcy," said Alan
Sbarra, vice president of Unisys R2A Transportation Management Consultants in
San Francisco.
Since the 2001 terrorist attacks, the industry has lost $18 billion and expects
to lose another $6.7 billion this year without a war in Iraq. Cash reserves are
nearly depleted, and carriers are having trouble borrowing the money they need
to stay in business, the Air Transport Association said.
Practically the only airlines making money are discount carriers such as
Dallas-based Southwest and Orlando-based AirTran, which fly fewer routes and
have lower expenses.
United and US Airways are already in Chapter 11 bankruptcy reorganization, and a
union representing American's flight attendants said on Monday that airline may
be close to filing for protection from its creditors.
Given that, the economic damage from a war-related decline in travel would
create "a serious risk of bankruptcies and liquidations," the airline trade
group said in its Tuesday report.
After the start of the first Gulf War, in 1991, seven major airlines filed for
bankruptcy because of the resulting slump in ticket sales. Four of those
airlines -- Eastern, Pan American, Midway and Markair -- were ultimately
liquidated, the trade group noted.
During the past 18 months, the major U.S. airlines have tried to lighten their
financial loads by cutting expenses, eliminating 100,000 jobs and taking
hundreds of planes out of service. Still, "we fear that the consequences of this
war will be severe," said James May, the airline association's president and
chief executive.
Shares of AMR Corp., the parent of American Airlines, dropped 34 percent on
Tuesday after Standard & Poor's said it will drop the world's largest airline
from its flagship S&P 500 index after the close of trading on Thursday.
Shares of Delta Air Lines fell 22 percent Tuesday after the nation's
third-largest carrier said it now expects a negative cash flow from operations
this quarter because of travelers' concern over a potential war with Iraq.
Delta, the dominant carrier at Orlando International Airport, said it expects to
fill 1.5 percent fewer seats during the first quarter than during the same three
months last year. "Bookings for the quarter are down, and we expect this to
continue," said M. Michele Burns, executive vice president and chief financial
officer.
AirTran spokesman Tad Hutcheson said a war would affect the low-cost carrier
less than it would the major airlines.
The Orlando airline ended the year with a cash balance of $138 million, and its
only international route is to the Bahamas. International travel to the United
States is expected to drop more sharply in the event of war than domestic trips.
The actual decline in travel will depend on what happens during a war, experts
said.
If a U.S. victory is swift and decisive, and there are no attacks on U.S. soil,
demand for travel could quickly increase, said Peter Yesawich, an Orlando-based
tourism marketing consultant.
But if people think the war is dragging on, or there is another terrorist
attack, tourists will probably drive instead of fly and visit places closer to
home, he said. And if the economy worsens as a result, companies will be even
more wary of approving business trips, he said.
Some Central Florida tourism leaders are hopeful the region will do OK because
it's a day's drive from most of the Southeast's major cities and its attractions
appeal to families. But at least one analyst thinks Orlando's tourist-dependent
economy is likely to be hit even harder than the airline industry.
"I would argue that Orlando will be disproportionately, unfavorably affected
because so much of the travel to Orlando is discretionary," said Bob Allsbrook,
chief economist at AmSouth Bank. "So many of the folks who go to Orlando can
just not go," while many business travelers to other cities will have to
continue doing business in those places.
The Orlando/Orange County Convention & Visitors Bureau has said it would respond
to a decline in air travel by advertising more within the state and in markets
such as Atlanta and Charlotte, which are within a day's drive of Orlando.
Experts also expect widespread discounting, even among airlines, which have
already cut prices since the September 2001 attacks. "They don't have any
choice," Sbarra said. "If they don't lower their fares, the seats are going to
be empty."
Barry Flynn and Jerry W. Jackson of the Sentinel staff contributed to this
report. Wire services also were used.
By Todd Pack
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(c) 2003. Distributed by Knight Ridder/Tribune Business News.
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