"Airline Traffic Declines 10% Since the War in Iraq Began"

Wednesday, March 26, 2003                         
 
Airline Traffic Declines 10% Since the War in Iraq Began
By SCOTT MCCARTNEY, STEPHEN POWER and NICOLE HARRIS 
THE WALL STREET JOURNAL


Passenger traffic on U.S. airlines since the war with Iraq began is down
more than 10% from the year-earlier period, according to internal industry
numbers, and with bookings for future trips plunging, governments in the
U.S., Canada and Europe all moved closer to propping up air carriers
Tuesday.

The systemwide traffic figures, the first snapshot of the impact of war at
the nation's airports , are in line with the capacity cuts announced by
airlines, which have varied from about 6% to 14%, depending on the carrier.

Traffic in the days leading up to war was down 3% to 5%, industry officials
said. Though modest, any drop from last year's very weak traffic represents
more pain for a devastated industry.

Delta Air Lines said Tuesday that its first-quarter loss would be "greater
than" the loss of $397 million, or $3.25 a share, it posted a year ago. In
its annual report, filed with the Securities and Exchange Commission, Delta
Chief Executive Leo F. Mullin wrote that the airline industry will continue
to face "duress" in the months ahead.

"Economic analysts indicate that recovery is unlikely before 2004, if then;
competition in the air-travel marketplace continues to escalate, revenue
remains depressed, and geopolitical concerns are increasingly complex," he
wrote.

Ray Neidl, an analyst at Blaylock Partners LP in New York, said he is
expecting other airlines to mimic Delta's warning of a wider-than-expected
first-quarter loss. Airline bookings, he said, "fell off a cliff" in
mid-March on war jitters, and while airlines now are cutting capacity in
response to decreased passenger demand, they won't immediately see the
cost-saving effects of such moves. "The second half of March will be a
disaster for the industry," he said.

Industrywide traffic figures available to airlines show a sharp decline
beginning when President Bush issued his 48-hour ultimatum to Saddam Hussein
last week.

Compared with a year earlier, traffic was off 7.7% on March 17, followed by
an 11.4% drop on March 18 and a 15% drop on March 19, the day the ultimatum
expired and bombing began. With war under way, the data show traffic off 9%
to 11.7% daily.

Bookings for future travel have been more profoundly impacted, though
bookings could snap back once travel worries subside. Continental Airlines
Chief Executive Gordon Bethune said Tuesday that bookings at his carrier are
down 20% domestically and 40% internationally. "That means people aren't
planning to fly next week. Next week will be worse for us than it was last
week," Mr. Bethune said. In a speech delivered in Cleveland, he warned that
Continental, in a "worst-case scenario," might have to shut down its hub
operation in that city because of weak traffic.
 
Elsewhere, Lufthansa said it is cutting its summer capacity on overseas
routes by seven aircraft, citing a drop in passenger bookings to the U.S.
and Asia since the war in Iraq began. British Airways also canceled flights
to New York and Tokyo. British Air and Lufthansa are the largest operators
of flights between Europe and the U.S., followed by Delta, which earlier
this week said it will cut its capacity by 12%.

British Airways said Wednesday it plans to reduce capacity by 4% during
April and May. The carrier said it would accelerate its cost-cutting and
restructuring program as the war reduced demand.

At UAL Corp.'s United Airlines, workers awaited word if the company intends
to impose further layoffs or put staffers on unpaid leave now that it has
announced an 8% capacity reduction. The company has declined to comment.

In Washington, congressional leaders signaled a new willingness to help
airlines weather the impact of war, even as the Bush administration declined
to request any money for the industry as part of a proposed $75 billion
package to pay for the conflict in Iraq and homeland-security projects.

Senate Majority Leader Bill Frist (R., Tenn.) said he expected Congress to
pass some kind of relief measure for airlines. He didn't say what kind of
aid lawmakers would approve, or how soon.

"I think it is likely that either in the supplemental or some other form,
relief will be given to the aviation industry," Sen. Frist said. He was
referring to the multibillion-dollar spending bill that would support U.S.
troops both in Iraq and in other operations related to the broader war on
terrorism for the next six months.

Separately, in a meeting with reporters, House Majority Leader Tom DeLay
(R., Texas) suggested the industry may not get a relief package as quickly
as it would like. Mr. DeLay said that while the airline industry is in
"desperate shape," it was unlikely that the war package would include money
for the airlines. "We can do it as a separate bill," he said.

A senior administration official said Congress and the administration may
eventually agree on some token financial assistance for airlines to meet
"political requirements." But the official said, "The market is giving us a
clear message. ... This industry needs to restructure."

The airline industry has proposed a number of relief measures, including
having the government take over about $4 billion in added security costs;
relieving the carriers of the $9 billion they pay annually in various taxes
and fees; or using government oil reserves to bring down jet-fuel prices.

Appearing before a luncheon audience of airline lobbyists, the new chairman
of the Senate Aviation Subcommittee, Trent Lott (R., Miss.), assured
industry officials that Mr. Bush's decision not to request any money for
airlines "doesn't mean the door is shut." Mr. Lott said congressional
leaders are in talks about "what is justifiable" to help the industry, but
gave no assurances on how soon Congress might act.

"Clearly, we dumped some costs onto industry that shouldn't be borne by the
industry," Mr. Lott said, drawing applause from his audience. As an example,
he cited a requirement that airlines screen any catered food they serve for
bombs or other weapons.

Speaking to reporters later, Mr. Lott added: "We're not going to give them
money, but we might relieve them of costs." One possibility, he said, is a
suspension of the 4.3-cent-a-gallon fuel tax, which adds about $600 million
annually to airlines' fuel-cost burden.

Other governments also found themselves facing the same question of whether
to prop up crippled airlines. In Canada, federal Transportation Minister
David Collenette said in Parliament Monday that the government is
considering all options to help Air Canada, including the possibility of
taking an equity stake in the struggling carrier. Air Canada, which controls
73% of Canada's domestic air traffic, announced last week that it was laying
off 3,600 employees.

In Brussels, the European Union Commission said it would allow EU
governments to help airlines cover costs arising from the war in Iraq. The
measures, which are similar to those put in place by the EU after the
terrorist attacks on Sept. 11, 2001, focus on actions member governments can
take to help their airlines without distorting competition.

Attached Graphic:

Change in U.S. airline passenger traffic compared with a year earlier.

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