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The Honolulu Advertiser
Posted on: Sunday, July 21, 2002

Airlines' summer turnaround hopes fade

By Marilyn Adams
USA Today

Ten months after the terrorist attacks, major airlines' march toward recovery has stalled amid weak travel demand and a sea of cheap fares.

Instead of an expected summer turnaround, demand hasn't improved since March and revenue is off 20 percent. More expected losses in the third quarter — typically the industry's strongest — mean some airlines could be at risk this fall and winter, the slowest travel periods of the year.

Bankruptcies are "definitely" possible, says Dave Swierenga, chief economist for the Air Transport Association, the major carriers' trade group.

"If we're seeing this during our peak cash-generating time, some airlines are going to have no alternative" to a Chapter 11 filing, says Bill Swelbar, an aviation consultant at Eclat. "This could be a long, cold winter."

This week, major airlines are expected to announce record second-quarter losses totaling $1.5 billion, Swierenga says. The only major airline expected to post a profit is low-fare carrier Southwest Airlines.

The only good news is for fliers: continued low fares as big, full-service airlines compete against discount carriers' growing influence.

Troubling signs:

• American Airlines' parent AMR announced Wednesday a $495 million second-quarter net loss after a $575 million first-quarter loss. Its loss was $3 a share before a special item versus a loss of 68 cents a share before special items in 2001's second quarter. AMR warned of a "sizable" third-quarter loss.

• United Airlines issued layoff notices Wednesday to 226 mechanics. United has applied for $1.8 billion in federal loan guarantees to avert a cash shortage in late 2002 or 2003.

• US Airways says more layoffs are likely and bankruptcy reorganization is possible even if it receives a $900 million federal loan guarantee.

"It's not possible to make money in this environment," Swierenga says.

He doesn't expect profits until 2004.

"Demand has not returned at the rate we expected," says Jeff Campbell, AMR's chief financial officer.

AMR's announcement comes days after management held a rare headquarters meeting with leaders of its pilots, flight attendants and mechanics unions to lay out the dreary outlook. Executives said the airline won't need as many employees in the future and didn't rule out layoffs, union officers say.

"It's unprecedented: We're over $1 billion in the hole in the first six months," says George Price, spokesman for the Association of Professional Flight Attendants.

Other airlines are scheduling layoffs. Northwest has advised 40 pilots they will be laid off in November. United said there's less work for mechanics now that its old Boeing 737s and 727s have been parked to cut costs. Since Sept. 11, airlines have laid off tens of thousands of workers.