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

Air travel down 10% since war broke out

By Mary Schlangenstein
Bloomberg News Service

WASHINGTON — U.S. airline passenger traffic fell 10 percent during the week since fighting began in Iraq and the industry cut 10,000 jobs, underscoring the need for government aid, a U.S. airline industry trade group said.

Traffic will decline further as consumers avoid flying during the war, the Air Transport Association said. U.S. ticket bookings are down by 20 percent for flights in the next 60 days to 90 days and international reservations are down by 40 percent, hurting U.S. carriers as they try to recover from record losses, the group said.

"Since the fighting began, traffic has plummeted," said James May, president of the group, in a conference call with reporters. "This decline is a direct result of the war."

When the U.S.-led attacks in Iraq started, Delta Air Lines Inc. and other carriers cut flight capacity as much as 12 percent. The war may increase industry losses this year by $4 billion to a combined $10.7 billion and lead to 70,000 job cuts and 2,200 daily flight reductions, the Air Transport Association has predicted.

Delta Chief Executive Officer Leo Mullin said yesterday his company may eliminate more jobs because of the drop in travel since the start of the war. He said he couldn't estimate the size of the reductions.

Carriers are seeking $4 billion in aid to offset expected war-related losses. The assistance would most likely come in the form of war-risk insurance subsidies and reimbursements for security costs, he said, adding that there still is no guarantee carriers will get aid. The industry has pulled back from pushing its proposal for a tax holiday, said May, of the Air Transport Association.

Sen.Trent Lott, R-Miss., chairman of the aviation subcommittee, said "there's a good chance" airline aid will be included in President Bush's $74.7 billion emergency spending bill.

The airline group's appeal for more aid followed a report by UAL Corp.'s United Airlines that it had a loss of $367 million last month, low enough to remain in compliance with limits in its bankruptcy loans.

United, the world's second-largest airline, will find it increasingly difficult to meet loan conditions imposed by its bankruptcy lenders, said Fitch Ratings analyst Bill Warlick. Terms from creditors, including Citigroup Inc. and Bank One Corp., require the carrier to narrow its overall losses for the next three months among the so-called covenants for the loans.

"The February target was very liberal," Warlick said. "The real trick on the covenant targets starts next month and in May in particular."

"The war in Iraq presents a number of serious challenges that are already affecting the industry and that are expected to negatively impact earnings and cash flow for United and its competitors," UAL Chief Financial Officer Jake Brace said in a statement. "We are moving rapidly to address those challenges."

The company told its unions last week that it would place 3,488 mechanics and flight attendants on temporary leave without pay next month and reduce flight capacity by 8 percent more than previously planned because of a drop in demand tied to the war.

Separately, American Airlines, the world's largest carrier, said a dispute with its pilots union won't delay talks that could produce an agreement in days for $660 million in concessions from the work group.

American's Allied Pilots Association said the airline wants to lay off as many as 1,000 pilots in addition to cuts already included in talks. American, the world's largest carrier, denied increasing its demands, saying the layoffs were "already accounted for" before it sought employee concessions. The union represents 13,500 American pilots.

The $660 million is part of $1.8 billion in total worker concessions American has said it needs to avoid a bankruptcy filing. American also is seeking $2 billion in other annual cost reductions after a record $3.5 billion loss last year as companies held down travel spending and airlines trimmed fares to 15-year lows.

If AMR is unable to avoid bankruptcy, the union said it "is prepared to consider a variety of alternatives, including a possible employee purchase of the airline, a different management team and other changes."