"War, Fear of New Illness Add to Airline Problems"

Wednesday, April 2, 2003

War, Fear of New Illness Add to Airline Problems
By Sara Kehaulani Goo and Keith L. Alexander
The Washington (DC) Post


Even as a $3 billion-plus government aid proposal gained momentum, the
airline industry's crisis deepened yesterday with more layoffs, another
bankruptcy, a jet quarantined over suspicions of a deadly disease aboard and
a widening perception of a prolonged war in Iraq.

United Airlines said it expects to lay off more pilots and Continental
Airlines said it needed to eliminate more than the 1,200 jobs it announced
last month that it would cut.

Air Canada yesterday filed for protection from its creditors. United
Airlines, which is in U.S. bankruptcy court protection, assured its
customers that its code-share partner will continue its normal schedule.
American Airlines, which narrowly avoided having to file for protection on
Monday, yesterday briefly quarantined one of its flights in California after
passengers and crew were suspected of having symptoms of severe acute
respiratory syndrome (SARS). None had the disease, officials said.

The war with Iraq has had a greater impact on business than airlines
expected. Last month, the Air Transport Association estimated that passenger
travel would drop about 8 percent, but domestic traffic has declined about
10 percent. Advance bookings are off 30 to 40 percent.

"Things are worse than we projected," said James C. May, chief executive of
the Air Transport Association. He said he did not believe that SARS, which
has prompted Asia-based airlines to cut flights, would affect U.S. airlines.
He called yesterday's incident with American an "overreaction" by the
authorities in San Jose.

Members of Congress yesterday said they had to help the airlines quickly.
U.S. airlines lost $10 billion last year and expect to lose $11 billion this
year.

"This is not something we should be apologizing about. It's badly needed,"
said Sen. Harry M. Reid (D-Nev.) "No other industry is facing more economic
problems than the airline industry."

Democratic and Republicans alike debated little in their rush to approve
airline subsidies as part of the $75 billion supplemental spending bill to
pay for the war with Iraq. The airline industry is "one of most vital
industries we have and somehow we need to stimulate this industry at home
and abroad," said Sen. Ted Stevens (R-Alaska), chairman of the Senate
Appropriations Committee.

Congressional leaders expect to bring the supplemental spending bill to
votes in the full House and Senate later this week, and hope to resolve
differences between bills in conference committee meetings over the weekend.

Some aviation experts said the industry has problems that Congress can't
solve. Darryl Jenkins, a professor at George Washington University who has
followed airlines for three decades, said that the government would do only
harm by bailing out airlines.

"If this is going to prop up failing airlines, I'm very very opposed," he
said. "I have no problem watching a carrier fail, even if it has my friends
in it. Let the industry shake itself out, and we'll be better off for it."

Jenkins said the country needs to focus on long-term restructuring. In the
short run, the airline industry should "go through the pain and get it over
with."

Half the U.S. jobs lost since the terrorist attacks in September 2001 have
been in aviation and travel, according to the Air Transport Association. The
trade group said the industry, its suppliers and related businesses account
for about 8 percent of the gross domestic product.

Even so, problems in the airline industry don't have the ripple effect in
the economy that events such as oil-price increases have. When the airlines
lose business, other industries often benefit, said Joel Prakken of
Macroeconomic Advisers. It is not a loss for the larger economy if leisure
travelers take the money they would have spent on airline tickets and spend
it on another type of vacation, he said. "The same is true of business
travel. Profits at the airlines go down, but profits of the companies not
spending on business travel may go up."

War anxiety, the economic downturn and concern about SARS have speeded a
process that had already begun, said Michael E. Levine, a former senior
airline executive who is now a law professor at Yale. "We're going through a
very ugly, painful restructuring process that is the denouement of the
deregulatory process that started in 1978," he said. That involves airlines
reducing their labor costs, infrastructure and fleets to improve their
ability to compete with low-cost carriers such as Southwest.

The Senate Appropriations Committee approved $3.5 billion for the airline
industry, including a Democratic proposal for $225 million in unemployment
insurance for 200,000 laid-off airline employees. "If the U.S. government is
going to help out the airlines, we've got to help out the workers as well,"
said Sen. Patty Murray (D-Wash.), the committee's ranking minority member.

In the House, the Appropriations Committee approved $3.2 billion for the
airlines in a proposal offered by Speaker J. Dennis Hastert (R-Ill.) that
included few details other than direct cash reimbursements to airlines for
security expenses. The committee also passed an amendment offered by Rep.
Martin O. Sabo (D-Minn.) that would limit airline executives to the base
salaries and stock options they received in 2002. A similar measure, opposed
by the airlines' largest lobbying group, is also part of the Senate
proposal.

Under both bills, a $2.50 fee for each leg of an airline trip, is likely to
be eliminated.

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