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Is Worst Ahead for Airlines?

Ailing Carriers Prepare Survival Strategies as War With Iraq Looms

By Keith L. Alexander
Washington Post Staff Writer
Tuesday, March 11, 2003; Page E01

U.S. airlines, already in the weakest shape in memory because of terrorism, the economy and their own errors, are bracing for a fresh blow from a war in Iraq. The outbreak of hostilities is likely to drive up oil prices and keep legions of air travelers at home, intensifying the financial hardship of an industry already struggling under tons of red ink, massive layoffs and two major bankruptcies.

"You now have a combination of events leading up to the war that could make this the worst crisis in aviation history," said Robert L. Crandall, retired chief executive of American Airlines. "A war with Iraq clearly means that unless the major carriers reduce their costs dramatically, then in the long run, all of them will go bankrupt."

Passenger bags are screened in Miami recently. Air travel could drop 10 percent if war starts, one group estimates. (Richard Patterson -- AP)

_____Stock Quotes_____
Southwest Airlines Inc (LUV)
Continental Airlines Inc (CAL)
UAL Corp (UAL)
Boeing Co (BA)
British Airways PLC (BAB)
Midway Airlines Corp (MDWYQ)
America West Holdings Corp (AWA)
US Airways Group Inc (BB)
Delta Air Lines Inc (DAL)
AirTran Holdings, Inc (AAI)
Frontier Airlines Inc (FRNT)
AMR Corp (AMR)
_____From the TSA_____
Airline Jet Traveler's Tips
List of Prohibited Items (pdf)
TSA Web Site
Video: Passengers Prepare for Tighter Security
Video: Reagan National on 9/11
Video: New Security Measures
Graphic: TSA Uniform Proposal
Graphic: New Security Checkpoints
_____TechNews.com Archive_____
Airlines Plan Quick System For Identifying Passengers (The Washington Post, Jun 22, 2002)
In Terror War, Privacy vs. Security (The Washington Post, Jun 3, 2002)
Intricate Screening Of Fliers In Works (The Washington Post, Feb 1, 2002)

The airlines are preparing survival strategies that include prepaying for fuel to offset higher prices later, postponing delivery of aircraft, deferring employees' wages, renegotiating payments to suppliers and creditors and heavily lobbying Congress for relief.

The airlines are in a far more precarious condition than they were the last time the United States went to war in Iraq in 1991. The Sept. 11, 2001, terrorist attacks have crippled air travel, forced the elimination of many flights and raised the airlines' costs for security. The weak economy and rising oil prices also have contributed to the carriers' steep losses.

Airline executives fear a drastic decline in travel if the war lasts a month or more. They believe that in the environment after the terrorist attacks, travelers will flee from airlines in far greater numbers than they did during the Persian Gulf War in 1991, especially on domestic routes.

Air travel could drop 10 percent during a confrontation with Iraq, said the Air Transport Association, which plans to release a report today on the air industry crisis. During the Gulf War, demand fell 8 percent -- at a time when travelers had fewer worries about terrorist attacks in the United States than they do today. Sept. 11 has erased that sense of security.

Passengers also may choose not to fly during a war because of heightened airport security, which will increase the hassle of air travel. "We don't know what additional security restrictions might be placed on travelers and airlines by the government and how those restrictions will impact travel," said Gary F. Kelly, chief financial officer for Southwest Airlines, the only carrier to turn a profit since the terrorist attacks. "It's sort of 1991 all over again and maybe worse."

After the 1991 war, the airline industry underwent a restructuring that knocked out some venerable names. Eastern Air Lines was out of business by year's end. Pan Am and Midway also eventually folded. Continental and America West struggled through bankruptcy and are flying today.

This time, the outcome may be grimmer, airline executives and experts warn. The airlines lost $18 billion over the past two years and expect to lose another $5 billion this year even without a war. Two carriers -- US Airways and United -- have filed for bankruptcy protection. American Airlines, the world's largest, has hired bankruptcy attorneys. American's flight attendants union said yesterday that the carrier's bankruptcy filing may come soon. And yesterday Delta said it expects negative cash flow from operations in the current quarter because of war concerns.

If a war in Iraq drags out, the industry could face losses at the rate of $4 billion a quarter from higher fuel costs and a further drop in travel, according to the Air Transport Association.

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© 2003 The Washington Post Company


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