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The Honolulu Advertiser
Posted on: Thursday, March 27, 2003

War erodes health of U.S. commerce

By Peter Robison
Bloomberg News Service

NEW YORK — Northwest Airlines Corp., Walt Disney Co. and General Motors Corp. are among hundreds of U.S. companies feeling the effects of the week-old war on Iraq as consumers rein in spending and airlines cut flights.

Northwest will eliminate 4,900 jobs, and analysts said every large carrier may go bankrupt in a war longer than a few weeks. Terrorism fears are keeping some people away from Walt Disney World in Orlando, Fla.

Analysts project a 9.4 percent decline in U.S. car sales this month, twice that in January and February.

The lost sales threaten an already fragile quarter. Analysts predict first-quarter earnings for companies in the Standard & Poor's 500 Index will rise 8.1 percent, half the forecast in October, according to Thomson Financial. More companies may reduce profit estimates than at any time since the Sept. 11 terrorist attacks, said Chuck Hill, Thomson's research director.

"Consumers need to get back out spending in the next couple weeks, or we move from a stall to a downturn," said Kevin Bannon, chief investment officer at Bank of New York Co., which manages $70 billion.

US Airways Group Inc. reported a 40 percent decline in bookings in the week before the war, cruise lines such as Carnival Corp. have cut prices and Starwood Hotels & Resorts Worldwide Inc. said it may cut more jobs after slashing 10,000 since the Sept. 11 attacks.

"It's not going to be a good month for us," said Dan Flannery, general manager of the Ritz-Carlton hotel in New York's Battery Park City area, where he expected occupancy this past weekend in the mid-40 percent range instead of the usual 75 percent. Marriott International Inc. operates Ritz-Carlton.

Retail sales last month dropped 1.6 percent, the biggest decrease since November 2001, and consumer confidence has fallen to the lowest in more than a decade.

Barnes & Noble Inc., the world's largest book seller, said it may have a first-quarter loss, partly because consumers may be distracted during a war. Federated Department Stores Inc., May Department Stores Co. and EBay Inc. also said they could see sluggish sales.

Disney said growth will be slower than expected in 2003, without being more specific, partly because fear of terrorism is hurting travel to Walt Disney World.

The number of people visiting U.S. auto showrooms has dropped 30 percent in March from the year-earlier period, a steeper decline than after Sept. 11, according to CNW Marketing/Research Inc. Demand so far in March suggests sales will drop to 1.38 million cars and trucks for the full month from 1.52 million in March 2002, J.D. Power & Associates said.

Still some investors and executives have a different view and are convinced that a victory will unleash long-delayed capital spending.

"A quick end to hostilities would be a fine tonic for the economy," said George Mairs, who oversees $875 million as president of Mairs & Power Inc. in St. Paul, Minn.

Paul Ballew, director of market analysis at General Motors Corp., said car and truck sales may rebound in the second half.

"Now that it is happening, (the war) is a distraction," said Martin Bukoll, an analyst at Northern Trust Corp., which manages $320 billion in assets. "Once we see the outcome, there's a sense of relief. I hope that improves people's attitudes and shakes us out of this malaise."

Northwest, AMR Corp.'s American, Continental Airlines Inc. and other U.S. carriers don't have long to wait. Already reeling from Sept. 11, they may not have enough cash to survive a war longer than two months, according to a report by Deutsche Bank. Some analysts are even less optimistic.

"If the war lasts more than a week or two weeks, we're going to be facing Armageddon for the airline industry," said Julius Maldutis, an independent industry analyst.