"Airlines Announce Cutbacks as They Prepare for War"

Wednesday, March 19, 2003

Airlines Announce Cutbacks as They Prepare for War
By MICHELINE MAYNARD and EDWARD WONG
The New York (NY) Times


The airline industry, already crippled by a weak economy, scrambled
yesterday to prepare for the effect of a war with Iraq by suspending and
eliminating flights and warning employees to expect emergency cuts in wages
and benefits amid signs that air traffic is declining.

Continental Airlines said yesterday that on April 6 it would cut seven
flights a week, from Newark, Cleveland and Houston to London, Paris and
Tokyo because of a drop in passenger demand. The Israeli airline El Al, said
it was cutting 29 flights a week, 15 percent of its capacity, including 2 to
New York, because its passenger levels have dropped 40 percent so far this
month. British Airways said that flights to and from Kuwait and Israel would
be suspended indefinitely, while Swiss International Air Lines is suspending
two of its six weekly flights between Zurich and Cairo.

United Airlines, which warned last week that it would cut its capacity 10
percent to 12 percent in the event of war, said it was watching traffic "day
by day" to determine when to act. American Airlines and Southwest Airlines
said they would wait for a military conflict to start before determining
whether to cut back, while US Airways said it had no plans to reduce its
flights.

Still, both US Airways, whose bankruptcy restructuring was approved by a
judge yesterday, and United, also operating under bankruptcy protection,
warned employees that they might soon face emergency cuts in wages and
benefits because of a decline in bookings caused by fears of a war.

"There's no question that the airlines have felt the effect" of passengers'
reluctance to book tickets in the face of a war, said Sandy Rederer, an
aviation industry consultant in Arlington, Va.

One measure aimed at helping the airlines is to be introduced in Congress
today. The Aviation Stabilization Act of 2003 would give airlines access to
$3 billion of the $10 billion in federal money that was authorized after the
Sept. 11 terrorist attacks. This would help offset a spike in jet fuel
prices brought on by a war, according to an advance draft of the measure.

The bill would also reimburse airlines for the $312 million cost of
reinforcing cockpit doors and would guarantee federal terrorism insurance
for four years, without an increase in premiums. It would also authorize the
Transportation Department to reimburse airlines for losses from a war, a
proposal that is likely to stir debate. "That's a stretch," said a senior
executive in the transportation industry, who spoke on the condition of
anonymity.

But Representative James L. Oberstar, Democrat of Minnesota, who planned to
introduce the bill, said he would argue in favor of reimbursing the
carriers.

Mr. Oberstar predicted traffic would slump, as it did in reaction to the
Persian Gulf war in 1991, and he said the industry would vitally need
relief. "This is a proposal based on experience," he said.

In Washington, Transportation Secretary Norman Y. Mineta said the Bush
administration was prepared to "move very quickly" to help the air carriers
in the event of war.

Despite the promises of assistance, Standard & Poor's, the credit rating
agency, placed nine domestic airlines and two European carriers on credit
watch with negative implications, citing the prospect that a war would lead
to increases in already high fuel prices and would cause bookings to fall
further.

Airlines have acknowledged in recent days that their bookings through spring
have fallen precipitously, especially on overseas flights. In response, they
have eased restrictions placed on tickets to try to reassure passengers
nervous about making travel plans.

But Mr. Rederer said the airlines had themselves to blame for failing to
predict weaker traffic. For too long, he said, the airlines based their
schedules on forecasts that air travel would rebound this year from a
sluggish 2002, failing to sense that travelers' sentiment had shifted.

The Federal Aviation Administration released a report yesterday predicting
that domestic and international travel would increase this year, though it
said a war would put those projections at risk. The F.A.A. said that
domestic traffic would climb 3.5 percent and that international traffic
would rise 4.7 percent. The report was released only a few days after the
Air Transport Association, the industry's main trade group, warned that
airlines could lose $10.7 billion this year and be forced to cut up to
70,000 jobs, if a long war ensues.

Daniel Solon, an industry analyst with Avmark International in London, said
that any predictions of a recovery this year were overly optimistic.
"Everybody's been sitting around telling themselves that after the shooting
is over, it'll all be over," he said. "I happen to be bearish on that. I
think we'll continue to see embedded weakness in the economy."

No airlines are more vulnerable to weaker traffic than the industry's two
bankrupt carriers, United and US Airways.

On Monday, United said in a filing in federal bankruptcy court that it might
have to impose 9 percent across-the-board wage and benefit cuts on all its
employees, on top of $1 billion in concessions that it ordered soon after
filing for bankruptcy in December.

United also said in the filing that it expected that its competitors would
be as hard hit as it has been. The company said that in the last several
weeks, its domestic bookings had fallen while its international bookings had
dropped 30 percent. As a result, United said it expected revenue through
June to be nearly $300 million lower than it planned in December, when it
filed for Chapter 11 bankruptcy protection.

US Airways said in bankruptcy court yesterday that a war might prompt it to
impose a 5 percent cut on its employees' pay and benefits, on top of
concessions it had already obtained. It also said that a war might force it
to reduce the number of aircraft it flies, something that it had promised
its unions it would not do under normal conditions.

The third-most-vulnerable carrier is American, which is negotiating with its
unions on $1.8 billion in wage and benefit concessions it said were
necessary for it to avoid bankruptcy. A spokesman for American, Todd Burke,
said the airline planned only one set of concessions and did not plan to
impose emergency cuts.

British Airways said yesterday that it was canceling several flights between
London and the Middle East. The airline will cut its service today to Tel
Aviv to one flight a day from two, then indefinitely suspend all such
flights starting tomorrow. The single daily flight from London to Kuwait,
with a stop in Abu Dhabi on the return leg, will be suspended starting
today.

The airline is also suspending one of two daily flights between London and
Dubai in the United Arab Emirates.

British Airways flies Boeing 777's with four classes of cabins on its Middle
East routes. Flights that go over the region to or from Asia will be
rerouted. Flights that once switched crews in the Middle East will now do
that during a stop in Cyprus because of security concerns.

"We hope to resume services to Kuwait as soon as possible, but will only do
so when we feel it's absolutely safe and the commercial demand returns,"
said John Lampl, a company spokesman.

Jim Faulkner, a spokesman for Air France, said planners in Paris were
monitoring traffic on its routes to see whether it needed to cut any
flights. Planning has become more difficult because passengers are booking
their flights closer to the date of travel, he said.

Thai Airways is canceling flights starting tomorrow from Bangkok to Kuwait
and Bahrain.

Delta Air Lines did not make any schedule changes yesterday but said it
would allow some passengers with restricted trans-Atlantic tickets to change
their destinations, cabin classes or dates of travel without having to pay
the standard $200 fee. This policy applies to tickets bought from March 5 to
March 31. Such tickets can be changed before May 31 and would be good for
travel until the end of the year.

United Airlines announced a similar policy yesterday, though it said its
waiver of the standard change fee would apply to any ticket for travel
originally scheduled for May 18 or earlier and issued on or before March 31.
The company said travelers would need to change the ticket before either the
originally scheduled date or April 19, whichever comes first.

Attached Photo:

As Fear of war has caused many airlines to reduce schedules, and increased
security is apparent throughout Washington, including Ronald Reagan National
Airport.

19AIR.secure.jpg