Posted on: Sunday, September 14, 2003

Airlines yet to recuperate from Sept. 11

By Keith L. Alexander
Washington Post

Two years after the Sept. 11 attacks, the U.S. airline industry is still far from recovery.

In the aftermath of the hijackings, the major carriers have won billions of dollars in aid from Congress, mothballed planes, pruned services and cut workforces — and continue to pile up record losses.

"We thought we would be back to normal by now," said Gordon Bethune, Continental Airlines' chairman and chief executive. "We were wrong."

No one predicts additional bankruptcies among the biggest airlines: United Airlines expects to emerge next year, and US Airways came out of court protection in March. Many analysts believe the industry has passed the worst of its crisis.

But the major carriers are under heavy pressure. Low-cost carriers are expanding routes and siphoning off increasing numbers of passengers, even the once-loyal business travelers. The weak economy and the outbreak of severe acute respiratory syndrome, or SARS, also have trimmed the airlines' revenue. And a government reprieve from about $500 million in security taxes since June expires next month, further crimping the bottom line.

The industry's outlook also is complicated by a judge's ruling last week permitting lawsuits that seek to blame the airlines for injuries and deaths in the terrorist attacks.

The second anniversary of the attacks prompted some travelers to stay out of the air Thursday, with some U.S. airlines reducing flights by as much as 5 percent because of low demand, according to the Air Transport Association. That was significantly below the 25 percent cancellation level on the first anniversary.

The changed aviation landscape is forcing the carriers to adjust rapidly, and they are forging new strategies based mostly on deeper cost-cutting but also, in some cases, involving the launch of their own low-cost airlines.

By some estimations, the airlines are expected to reduce their losses in the third quarter, but questions linger about their performance through the end of the year and into the next.

David Swierenga, an economist at the aviation consulting firm Aero Econ, predicts industry losses of $6 billion to $8 billion this year and about $3.5 billion next year. If he's right, that means losses will total more than $30 billion since 2001, the industry's longest, steepest period of red ink ever.

A profitable year isn't likely until 2005, Swierenga said, adding that his forecast is contingent on the absence of another terrorist attack, war, SARS-like outbreak or plane crash. Airline executives also believe recovery is a year or two away.

"The guys who learn how to move fast enough will survive," Continental's Bethune said.