Iraq War Could Cost Airlines 10 Billion US Dollars

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Last updated at: (Beijing Time) Sunday, March 23, 2003

Iraq War Could Cost Airlines 10 Billion US Dollars

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The war in Iraq could easily add $10 billion to world airline losses and deepen what is already the worst crisis in the history of commercial aviation, the International Air Transport Association said on Saturday.

In the gloomiest forecast yet of the impact of the war on the industry, the association said it expects international passenger travel to drop 15 to 20 percent during the war, depending on the region of the world.

The IATA's forecast was the latest evidence of how devastating the outbreak of war in Iraq is for a key part of the global economy. Airlines have already reported accumulated losses of $30 billion since the Sept. 11, 2001 attacks in the United States reduced air travel.

During the war, many companies have ordered employees to only take essential business trips while tourists worldwide are canceling or postponing air travel altogether.

International bookings have plunged, particularly in the United States, where many people are choosing to stay home.

Airlines all over the world have been curtailing schedules, especially international routes to and from the Middle East, and many have had to cut jobs to stay in business.

BANKRUPTCIES WEIGH

Three U.S. airlines are already in bankruptcy protection -- UAL Corp.'s United Airlines, US Airways Group Inc. and Hawaiian Airlines Inc. -- while the world's largest airline, AMR Corp.'s American, is also teetering on the brink.

"The people who've always relied on American to get them to that business meeting in New York or that family reunion in Los Angeles are instead buying no-frills tickets on the Internet or worse still -- deciding to stay home," American Chief Executive Officer Donald Carty told employees in Chicago on Friday. "On top of all this, our nation has taken action against Iraq."

As the U.S.-led war on Iraq began this week, four of the top six U.S. airlines -- American, United, Continental Airlines and Northwest Airlines Corp. -- announced cuts in schedules. A host of major airlines in Europe and Asia also have curtailed international schedules.

United, Northwest, Continental and Air Canada have gone even further, imposing job cuts or temporary furloughs of employees. While the job losses by Air Canada and Continental were not just the result of the Iraq war, both United and Northwest cited the war as a major factor in their respective cuts.

Of the top six U.S. carriers, only Delta Air Lines Inc. and Southwest Airlines Inc. have not made cuts since the start of the war. Spokesmen for each airline declined to comment Saturday on whether any job- or flight-schedule cuts are planned.

Southwest, a low-fare carrier considered one of the most efficient in the industry, was also the only major U.S. carrier not to make cuts after Sept. 11, 2001.

MERGERS THE ANSWER?

Governments must help airlines tap financial markets for cash and allow them to merge to survive the crisis, IATA Director General Giovanni Bisingnani said on Saturday.

"We need the economies of scale that mergers and acquisitions can provide," he said.

Many countries, especially in Europe, have national ownership restrictions on airlines. Bisingnani said those restraints must go.

After Sept. 11, the U.S. government established an emergency loan program for airlines, but has been stringent about approving the credit guarantees. Late last year, it rejected an application from No. 2 U.S. carrier United Airlines and the airline filed for bankruptcy protection days later.

Now U.S. carriers and some members of Congress are calling for the government to step in again to help struggling airlines cope with the decline in business from the Iraq war.

Rep. James Oberstar of Minnesota, said on Friday the airline job cuts announced this week "clearly demonstrates the need" for Congress to approve an assistance package for airlines.

"We must not force the airlines to bear a disproportionate share of the direct and indirect costs of a war with Iraq," Oberstar said. He has proposed an airline aid bill in the House of Representatives.

Meanwhile, IATA said it has set up a task force to help its 270 member airlines plan and operate their routes during war.

By Karen Padley, Reuters

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