A friend forwarded me the following article last night. Looks like grim predictions for the already beleagered worldwide airline industry.
War could push airlines to the brink
Some airlines may not be able to recover, says one expert
By DAVID ARMSTRONG
SAN FRANCISCO CHRONICLE
The nation's shaky airline industry could be flying into the heaviest turbulence yet if war with Iraq breaks out.
To be sure, airlines will keep flying in the event of a U.S.-led invasion of Iraq. But industry experts say a major drop in passenger traffic -- especially on usually profitable international routes -- and a steep rise in costs for security and fuel will drive the airlines to losses of historic proportions.
Air travelers will certainly feel the impact in the form of security delays, flight cutbacks, possible rerouting and higher fares.
Jet fuel, the second-largest cost of airlines after labor, is particularly worrisome because it's "something the airlines can't control," said Darryl Jenkins, director of the Aviation Institute at George Washington University. "We've seen passenger traffic go down at the same time that fuel (costs are) going up. I have never seen it this bad."
The price of jet fuel has skyrocketed to $1.20 per gallon, more than double what it was in February 2002, according to the Air Transport Association, the airline industry trade organization.
Longtime observers say the dilemma facing the airlines is the worst since the Persian Gulf crisis of 1990-91, which depressed passenger traffic and obliterated profit. According to the Air Transport Association, U.S. airlines lost $10.6 billion from 1990 to 1992, and Pan American World Airways failed.
But today's situation is far worse than it was in 1991, said David Stempler, president of the Air Travelers Association, a non-profit consumer organization based in Washington.
"In the past, if one carrier was struggling, another one could jump in," Stempler said. "The airlines were in stronger financial shape in 1991. Now, everyone is struggling. They're parking aircraft in the desert. They're furloughing pilots."
The 10 biggest U.S. carriers lost a record $11.3 billion in 2002, more than the three-year losses attributed to the Gulf War. American Airlines, the world's largest airline, lost a record $3.5 billion. United Airlines, which filed for bankruptcy protection in December, lost $3.2 billion.
Overseas traffic is expected to be hit especially hard during any war with Iraq. Advance international bookings already are down by 20 percent to 25 percent, according to David Swierenga, the transport association's chief economist. If the shooting starts, Swierenga said, the nation's airlines will lose from $2 billion to $4 billion per quarter.
In the event of war, United, the world's No. 2 airline, said it will trim flights by 10 percent to 15 percent, according to Douglas Hacker, United's executive vice president for strategy.
Swierenga didn't say which airlines might survive and which could be casualties of war, but the Aviation Institute's Jenkins said corporate failures are likely.
By the time the war is over, Jenkins said, one or more major U.S. carriers could well be among the casualties, falling not just into Chapter 11 reorganization but Chapter 7 liquidation. In a worst-case scenario, "We could see the loss of United and American," he said.
Foreign airlines are experiencing similar financial difficulties and war-related jitters.
British Airways, Europe's largest carrier, has trimmed flights and dropped 10,000 employees during the past year. Last week, the airline canceled most of its flights to the Middle East and said that fears of war combined with weak business traffic may prompt it to pull the supersonic Concorde from service. Terrorism fears prompted the British government to station 1,500 troops and heavily armed police from Feb. 12 to 15 at London's Heathrow Airport, further unnerving travelers.
Industry observers say transatlantic routes, a mainstay for United, American and British, are certain to suffer, in part because the United States and Great Britain would be the major powers fighting Iraq, and in part because Americans are fearful of foreign travel anyway.
"Transatlantic travel will drop like a rock," said airline consultant Michael Boyd, principal of the Boyd Group of Colorado. "Americans think anywhere east of New York City is foreign," he said. Equating foreign travel with risk, Americans will stay home, Boyd said.
In the event of a war with Iraq, industry observers expect the airlines to offer some sweeteners to entice passengers.
"You might see special clients being contacted and offered extra miles," said Terry Trippler, an airline expert for the Web site cheapseats.com. Scrapping cancellation fees is another possibility, Trippler said.
But most observers think the airlines' room to maneuver is limited, especially on issues such as fares.
"I don't think fares can go any lower," said Christopher McGinnis, the head of TravelSkills Group, an Atlanta travel consultancy. "The round-trip fare from Atlanta to Amsterdam right now on Delta is $225."
If war ends swiftly with a U.S.-British victory, disruption of the aviation system and the U.S. economy, which is heavily dependent on the ease of air travel, may be limited, said the Aviation Institute's Jenkins.
"We're hoping we're seeing the worst right now," Jenkins said. "If it's a short war, we've already taken the major hit."