Even as a $3 billion-plus government aid proposal gained momentum, the airline industry's crisis deepened yesterday with more layoffs, another bankruptcy, a jet quarantined over suspicions of a deadly disease aboard and a widening perception of a prolonged war in Iraq.
United Airlines said it expects to lay off more pilots and Continental Airlines said it needed to eliminate more than the 1,200 jobs it announced last month that it would cut.
Air Canada yesterday filed for protection from its creditors. United Airlines, which is in U.S. bankruptcy court protection, assured its customers that its code-share partner will continue its normal schedule. American Airlines, which narrowly avoided having to file for protection on Monday, yesterday briefly quarantined one of its flights in California after passengers and crew were suspected of having symptoms of severe acute respiratory syndrome (SARS). None had the disease, officials said.
The war with Iraq has had a greater impact on business than airlines expected. Last month, the Air Transport Association estimated that passenger travel would drop about 8 percent, but domestic traffic has declined about 10 percent. Advance bookings are off 30 to 40 percent.
"Things are worse than we projected," said James C. May, chief executive of the Air Transport Association. He said he did not believe that SARS, which has prompted Asia-based airlines to cut flights, would affect U.S. airlines. He called yesterday's incident with American an "overreaction" by the authorities in San Jose.
Members of Congress yesterday said they had to help the airlines quickly. U.S. airlines lost $10 billion last year and expect to lose $11 billion this year.
"This is not something we should be apologizing about. It's badly needed," said Sen. Harry M. Reid (D-Nev.) "No other industry is facing more economic problems than the airline industry."
Democratic and Republicans alike debated little in their rush to approve airline subsidies as part of the $75 billion supplemental spending bill to pay for the war with Iraq. The airline industry is "one of most vital industries we have and somehow we need to stimulate this industry at home and abroad," said Sen. Ted Stevens (R-Alaska), chairman of the Senate Appropriations Committee.
Congressional leaders expect to bring the supplemental spending bill to votes in the full House and Senate later this week, and hope to resolve differences between bills in conference committee meetings over the weekend.
Some aviation experts said the industry has problems that Congress can't solve. Darryl Jenkins, a professor at George Washington University who has followed airlines for three decades, said that the government would do only harm by bailing out airlines.
"If this is going to prop up failing airlines, I'm very very opposed," he said. "I have no problem watching a carrier fail, even if it has my friends in it. Let the industry shake itself out, and we'll be better off for it."
Jenkins said the country needs to focus on long-term restructuring. In the short run, the airline industry should "go through the pain and get it over with."
Half the U.S. jobs lost since the terrorist attacks in September 2001 have been in aviation and travel, according to the Air Transport Association. The trade group said the industry, its suppliers and related businesses account for about 8 percent of the gross domestic product.
Even so, problems in the airline industry don't have the ripple effect in the economy that events such as oil-price increases have. When the airlines lose business, other industries often benefit, said Joel Prakken of Macroeconomic Advisers. It is not a loss for the larger economy if leisure travelers take the money they would have spent on airline tickets and spend it on another type of vacation, he said. "The same is true of business travel. Profits at the airlines go down, but profits of the companies not spending on business travel may go up."
War anxiety, the economic downturn and concern about SARS have speeded a process that had already begun, said Michael E. Levine, a former senior airline executive who is now a law professor at Yale. "We're going through a very ugly, painful restructuring process that is the denouement of the deregulatory process that started in 1978," he said. That involves airlines reducing their labor costs, infrastructure and fleets to improve their ability to compete with low-cost carriers such as Southwest.
The Senate Appropriations Committee approved $3.5 billion for the airline industry, including a Democratic proposal for $225 million in unemployment insurance for 200,000 laid-off airline employees. "If the U.S. government is going to help out the airlines, we've got to help out the workers as well," said Sen. Patty Murray (D-Wash.), the committee's ranking minority member.
In the House, the Appropriations Committee approved $3.2 billion for the airlines in a proposal offered by Speaker J. Dennis Hastert (R-Ill.) that included few details other than direct cash reimbursements to airlines for security expenses. The committee also passed an amendment offered by Rep. Martin O. Sabo (D-Minn.) that would limit airline executives to the base salaries and stock options they received in 2002. A similar measure, opposed by the airlines' largest lobbying group, is also part of the Senate proposal.
Under both bills, a $2.50 fee for each leg of an airline trip, is likely to be eliminated.
Staff writers Dan Morgan, Don Phillips and Martha McNeil Hamilton contributed to this report.