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Archive for Saturday, September 22, 2001

Long period of suffering ahead for airlines—the ones that survive

September 22, 2001

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The airline industry was in awful shape long before airborne terrorist attacks sent shivers through the public.

Now, the dual declines of business travel spending and the overall U.S. economy are merely the backdrop to what many expect will be a long period of suffering for carriers. For some, solvency depends upon huge layoffs and a multibillion-dollar bailout.

"We're so far away from break-even that it's not even worth calculating," said David Swierenga, chief economist at the Air Transport Association in Washington.

But calculate is exactly what airline executives did in detailing for Congress and the Bush administration their immediate and anticipated misfortunes and pleading for a gigantic relief package in hopes of staving off bankruptcies.

Analysts and economists have questioned whether the industry exaggerated its hand and bluffed the government into an unreasonably large bailout.

Nevertheless, Congress on Friday approved $15 billion in emergency funding, enough to keep commercial airlines in business through next June. Industry officials believe it will take that long for passenger volumes to return to their meager, pre-attack levels.

The bailout package includes $5 billion in immediate compensation for losses stemming from a two-day aviation shutdown after the attacks and the decline in business since then. The remaining $10 billion is for loan guarantees pegged to higher insurance premiums and security costs.

The package, approved swiftly and overwhelmingly by the Senate and the House, awaited expected approval from President Bush.

"This will help the airlines maintain short-term stability as they work toward long-term viability for the benefit of all the workers and companies that depend on air travel," the president said in his radio address Saturday.

But even with 20 percent fewer flights and tighter airport security visible nationwide, more than 60 percent of the seats on domestic flights remained empty last week.

More than 80,000 U.S. airline employees have been laid off and executives have said payrolls could be pared further. Delta, the only major carrier that had not announced layoffs by Saturday, warned employees to expect them soon.

Sen. Jean Carnahan, D-Mo., has prepared a $3.75 billion package of health insurance, unemployment benefits and training for displaced airline workers that the Senate is expected to take up soon.

Meantime, some industry watchers believe airline executives may be overstating attack-related losses and that the government underestimated the industry's pre-attack woes.

"Implausible, but not impossible" is how UBS Warburg analyst Sam Buttrick described the industry's forecasts of $5 billion to $6 billion in after-tax losses by the end of the year directly related to the attacks.

Buttrick, a widely respected analyst, said the attack-related losses for 2001 were probably closer to $2.1 billion to $3 billion.

Austan Goolsbee, an economist at the University of Chicago's Graduate School of Business, said the government needed to make a clearer distinction between the dire short-term situation, caused by events beyond the industry's control, and pre-existing inefficiencies that made layoffs and bankruptcies possible prior to the attacks.

"All the bailouts in the world are not going to change the economics of the industry, which is that demand went down," he said.

There is ample evidence that images of the destroyed World Trade Center and damaged Pentagon have caused widespread fear among travelers.

Mary Peters of Friendly Travel in Alexandria, Va., said roughly 70 percent of flights planned through November were canceled, meaning lost commissions and booking fees. Peters canceled $140,000 worth of airline tickets in one day.

At Los Angeles International Airport on Thursday, empty shuttle buses working for hotel and car rental companies trolled for customers at the world's third busiest airport, but there were few takers.

"It's a ghost town," said Robert Woodard, assistant manager at the Terminal ReXall Pharmacy at Miami International Airport.

Amtrak's ridership has grown by about 17 percent in the past week and many corporate travelers have shifted their business to chartered flights to avoid new security delays at major airports.

Now, aside from wondering which carrier is most likely to file for bankruptcy, the question on most industry minds is what it will take to lure travelers to the skies.

"I would like to see an immediate and highly visible show of armed guards on airplanes," said Kevin Mitchell, chairman of the Business Travel Coalition, which lobbies the industry on behalf of large corporations. "You just gotta do it. Otherwise, the flying public's not coming back anytime soon."

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