BBC Friday, 14 September, 2001, 16:26 GMT 17:26 UK Airlines bankruptcy warning US airlines face tough new safety measures

Losses are mounting for airlines around the world, and the bankruptcy of some carriers is looking increasingly likely, following the terrorist attacks on the US.

And the European Union said on Friday that it feared the attacks could have serious consequences for the air transport sector, adding that it will monitor events to avoid a crisis in the sector.

Share prices of airlines have fallen sharply since the attacks as brokerages and credit agencies have cut their the financial outlook for the firms.

And carriers themselves have begun to issue initial statements of their expected losses.

The International Air Transport Association (IATA) has estimated that this week's flight cancellations will cost the air industry $10bn (£6.81m).

On top of the cost of at least a week of severe disruptions, airlines are likely to face a sharp decline in passenger numbers over the next months.

The air industry was already under financial pressure before the attacks, because of a slump in demand due to the economic downturn and high jet fuel prices.

'High instability'

"The airline industry is cyclical," Professor Rigas Doganis, former head of Olympic Airways, told the BBC Radio 4's Today programme.

"It seemed as though we were on the edge of a downturn. What has happened will almost certainly push us over the edge.

"Airlines have been losing money in the last few months and it now seems these losses will increase dramatically."

The short-term losses springing from the severe disruption and cancellations over the past week could eventually seem small in comparison with the losses from dwindling demand for tickets.

"We will see a period of high instability, a number of airlines will probably collapse, there will be a period of consolidation and the air industry in four to five years time will look very different to how it does today," Professor Doganis said.

Series of downgrades

The outlook for the US industry looked sufficiently bleak for credit agency Standard and Poor's to downgrade its ratings of the corporate credit and loans of all US airlines.

The agency has also placed Air Canada and British Airways on credit watch because of these companies' substantial dependence on traffic to the US.

The price of British Airways shares has fallen by more than one third this week, sliding 15.8% on Friday alone.

EasyJet stock has lost 30% of its value over the week, while shares in Air France and Lufthansa both lost over 10% on Friday alone.

Schroder Salomon Smith Barney has downgraded the entire European airline sector, saying the terror attacks were likely to have a "catastrophic effect" on airline profitability.

US airlines are planning for falls in demand of 30-50% during the next six months, Chris Avery, aviation analyst at JP Morgan told the Financial Times.

And grounding aeroplanes, rather than flying empty seats around the world, may be one of the ways which airlines can try and save costs.

Asia hard hit

Asian airlines - which were already in financial difficulty and who fly a heavy proportion of transatlantic flights - are also expected to be hard hit.

US routes account for as much as 25% of all business of many Asian carriers, and All Nippon Airways has said that it is losing 60m yen ($502,200) a day on the cancellations.

Korean Airlines said its immediate revenue loss stemming from attacks was 15bn won (£7.88m, $11.5m) while the country's second-ranked Asiana Airlines put its losses at about 5bn won (£2.63m, $3.86m).

Korean Air shares fell 6% at the close on Friday and Asiana dropped 11%.

Taiwan's largest carrier China Airlines, which derives 20% of its revenues from Taiwan-US routes, fell 7%.

And Asia's biggest listed airline, Singapore Airlines, shed nearly 6% of its value.

Security costs

Tighter security measure will hike costs for the airlines and deter passengers.

The US has already introduced new measures including strict screening, a ban of checking in baggage outside the airport, and a total ban on knives and scissors.

And even tighter measures are likely to follow, with America's IATA saying it would like to see as many airlines as possible to introduce scanning systems which identify passengers by palm-prints or the iris of the eye.

Delays in processing passengers will slash terminal capacity, probably forcing the busiest airports to scale down their peak-hour operations, according to analysts.

Studies have shown that even a one-minute delay for the average passenger could significantly cut terminal capacity.

"I think in the near term you are going to see US airports will be near paralysed, because they will go overboard on security," said Peter Harbison, an analyst at the Centre for Asia Pacific Aviation.

'Blackest day'

One industry expert dubbed the attack "the blackest day aviation has had," with other catastrophes, such as the 1988 Lockerbie bomb, paling in comparison.

The attacks will affect both bookings to and from the US.

While there is expected to be a dramatic decline in passengers to the US, American tourists are expected to cut back on their international holidays.

As seen during the Gulf War, US tourists are likely to be concerned about becoming targets of terrorists when travelling outside their home country.

-- Anonymous, September 14, 2001

Answers

Just heard on the news, one of the air lines is going to layoff 12,000 people.

-- Anonymous, September 15, 2001

either midway or us air, I can't rmember the name, said they would not open unless and until the chapter 13 or whatever is worked out.

This was shortly after the grounding of all flights on Tuesday. maybe Wednesday morning.

I still think that installing sleepy gas in the cabins would be a great deterrant to hostage taking on flights. Or at least a deterrant for finishing whatever dastardly plan terrorists would have.

-- Anonymous, September 15, 2001

Midway is toast. They were already extremely shaky and the WTC attack finished them. I think they announced it Wednesday. (RDU was their home base.)

-- Anonymous, September 15, 2001

Saturday September 15 12:17 PM ET

Continental Air Lays Off 12,000 People

HOUSTON (Reuters) - Continental Airlines (NYSE:CAL - news), the nation's fifth largest carrier, said on Saturday it will reduce its long-term flight schedule by about 20 percent and will be forced to lay off about 12,000 employees after the hijacking attacks on the United States.

Continental cited a drastic decline in demand for air travel caused by Tuesday's terror attacks and the operational and financial costs of dramatically increased security requirements.

``The U.S. airline industry is in an unprecedented financial crisis,'' said Gordon Bethune, Continental chairman and chief executive officer.

Hijackers commandeered aircraft and crashed them into New York's landmark World Trade Center twin towers, which collapsed. Another flight was rammed into the Pentagon and a fourth plane crashed in Pennsylvania, apparently missing its target. Hundreds were killed and thousands remain missing.

The U.S. Federal Aviation Administration grounded all commercial air traffic on Tuesday for the first time.

On Thursday, the U.S. Department of Transportation ordered the U.S. national airspace reopened to commercial and private aviation -- but flights resumed slowly as airports and airlines implemented security measures.

Before the attacks, Continental and its subsidiaries flew more than 2,500 flights a day. The airline currently employs more than 56,000 people.

In the last four days, Continental said it has seen a drastic drop in bookings in an already declining economy. In addition, many corporations have instructed their employees to avoid U.S airlines, the Houston, Texas-based carrier said.

Bethune called on the president and members of Congress to take immediate action to restore the stability of the industry. ``Our industry needs immediate Congressional action if the nation's air transportation system is to survive,'' he said in a news release.

Continental said it expects to announce the details of its schedule reduction and furloughs within the week.

``While we regret the necessity for this massive furlough and substantial schedule reduction, and the adverse impact on our dedicated employees, customers and communities we serve,'' Bethune said, ``we have no choice.''

Global loss estimates for the industry are reaching the double-digit billions of dollars. House Democratic leader Richard Gephardt said he expected there would be legislation to help U.S. airlines struggling with liquidity problems.

Adam Pilarski, senior vice president at aviation consulting firm Avitas, on Friday said peoples' fear of flying would be a big short-term problem.

``If nothing bad happens, it will take one to two years to get back to where we were,'' Pilarski said. ``Probably traffic will drop at least 50 percent in the coming quarter, which of course is a disaster. Without a doubt there will be some consolidation.''

-- Anonymous, September 15, 2001