Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser

Posted on: Monday, December 24, 2001

Recovery still far off for airlines, planemakers

By Lynne Marek
Bloomberg News Service

CHICAGO — The Sept. 11 attacks cut a broad swath through the U.S. economy, and the industries hardest hit have little prospect of a full recovery next year.

Demand for air travel fell 20 percent, insurers gaped at $70 billion in losses, hotels braced for their worst results in more than three decades, and jet orders slumped as airlines mothballed 1,600 planes.

U.S. carriers may lose more than $6 billion this year, and The Boeing Co. doesn't expect orders to rise before 2004.

The tumult tossed hundreds of thousands of people out of work, including about 90,000 airline workers, and pushed the unemployment rate to a six-year high.

The attacks were "the difference between a struggling economy and one that ended up in recession," said Mark Zandi, chief economist at Economy.com in West Chester, Pa. He estimates the financial cost at $100 billion because of destroyed property and lower consumer confidence.

The National Bureau of Economic Research last month declared the United States had been in a recession since March.

But the impact on the airline and travel industries was most evident within a week of the attacks. The world's airlines had lost $25 billion, or 28 percent, of their market value. U.S. carriers' value remains down from the pre-Sept. 11 level by $3.9 billion, or 11 percent, while Europe's carriers are down just 2 percent.

When air transportation businesses get involved in a war, the economy feels the effect sharply, said Gordon Bethune, chief executive officer at Continental Airlines. "We're the canary in a mine shaft. When we're sick, you won't feel so good sometime soon."

Continental and its four larger rivals — AMR Corp.'s American Airlines, UAL Corp.'s United Airlines, Delta Air Lines Inc. and Northwest Airlines Corp. — all are expected to have losses next year. Europe's Swissair Group sought bankruptcy protection in October, and Sabena SA, the Belgian carrier that was 49.5 percent owned by Swissair, folded in November.

Carriers cut some fares more than 50 percent to spur demand, leading to a gradual return of travelers, albeit not as many high-fare business customers. It might help Continental break even by March, Bethune said.

Most big airlines are operating with 15 percent to 20 percent less capacity after retiring older planes and grounding others, leaving little need for new jetliners.

"We're talking about two to three years before we actually get the economy, the travel back, the airplanes back in service and then the need for new airplanes," said Alan Mulally, chief executive of Boeing's commercial planes unit.

Boeing, the biggest planemaker, is cutting as many as 30,000 jobs as it reduces commercial aircraft production to 24 planes a month. Its shares have dropped 43 percent this year and it is the worst performing company in the Dow Jones Industrial Average.

Airbus SAS, the second-largest planemaker, has said it will build as few as 300 aircraft next year. The company will cut the equivalent of 9,400 jobs by reducing work hours.

Smaller planemakers, including Canada's Bombardier Inc. and Brazil's Empresa Brasileira de Aeronautica SA, also have plans to fire workers amid production cuts. The same goes for suppliers such as United Technologies Corp., the maker of Pratt & Whitney engines; General Electric Co.'s aircraft-engine unit; and Goodrich Corp., the largest U.S. maker of landing gear.

Hotels, travel agents and cruise lines also were hurt.

American Express Co. fired as many as 6,500 workers this month largely to address a decline in travel bookings. The hotel industry is headed for its worst year since 1967, said consulting firm PricewaterhouseCoopers, and demand for hotel rooms in the United States won't rise until 2003.