Nuclear Fire Adds to Woes of Airlines : Peak Travel Season Was Already Hurt by Terrorism Fears

May 12, 1986|MARTHA M. HAMILTON | The Washington Post

WASHINGTON — If it's not one thing, it's another.

When travelers began canceling trips to Western Europe because of concern about terrorism, travel agents and airlines began talking hopefully about increased travel to Scandinavia and the Soviet Union.

But then, just as the peak travel season was about to begin, a crippled Soviet nuclear reactor began dumping radioactivity across much of Europe, leaving the travel industry--particularly the airlines flying the Atlantic--wondering if 1986 will be the Year Without a Summer.

"It looks like every time they turn around, they get clubbed again," said John Pincavage, an analyst with Paine Webber.

The biggest clubbing is going on in the air. Airline industry officials and analysts and travel industry officials concede that air traffic--particularly to Mediterranean countries--has declined markedly, with fears about terrorism compounding problems that began with a falling dollar.

Among U.S. carriers, Pan American World Airways, which depends on transatlantic travel for about 60% of its business, and Trans World Airlines, which flies routes to the Middle East and to the Mediterranean, are expected to take the hardest hits--but it is too early to tell the extent of the financial damage. The reduction in traffic is expected to hit hardest at TWA, which flies more routes into troubled areas than other U.S. carriers.

Many Changed Reservations

In the first week of February--even before the explosion on an Athens-bound TWA flight and the U.S. attacks on Libya--1.8 million Americans had changed their reservations to visit foreign countries as a result of terrorist incidents, according to the U.S. Travel Data Center.

The temporary diversion of tourist traffic from Europe comes as Pan Am and TWA were hoping for improvements.

Pan Am, which has sold assets and restructured itself, registered its first net profit since 1980 last year but had an operating loss of $181.5 million. TWA, which recently was acquired by financier Carl C. Icahn, is cash rich as the result of funds raised with the now-abandoned aim of buying out the company's public shareholders. But it has been struggling financially and has had to cope with a strike by flight attendants this year. TWA reported a loss of $191.3 million in 1985.

For the first quarter, TWA reported a preliminary loss of $169.6 million, compared to a loss of $74.3 million for the same quarter in 1985. The company attributed the poor showing to reduced revenue because of fare discounts, the weaker dollar, the strike and the public's fear of flying in the wake of terrorist incidents. In the first quarter, before the most recent incidents, passenger boardings in international service were down by 20%.

On May 2, Pan Am reported a first-quarter loss of $118.4 million, compared to a loss of $138.7 million for the same quarter a year ago. However, the company noted that the results for the two periods were not comparable because the airline's operations last year were substantially reduced by a strike during the first quarter and because this year's results don't include the airline's Pacific division operations, which were sold.

Expected Decline

The airlines and analysts note that traffic to Europe was expected to decline this year no matter what had happened, a natural falloff from the heavy traffic generated by the strong dollar last year. The turnaround in the dollar, which has made European travel much more expensive this year, would have taken its toll absent any fears about terrorism.

"The way we were looking at this before the recent run of terrorism was we were looking at about a 15% decline in traffic in the North Atlantic," said industry analyst George James of Airline Economics. "As it now stands, the loss will be greater for U.S. carriers serving the North Atlantic."

Although the loss of that traffic will be disappointing to U.S. carriers, it will not be crippling, according to many analysts. A major decline in bookings "would not be any sort of a fatal blow, but it could postpone their hopes for a good year," said Thomas Canning, an analyst with Standard & Poor's.

"It's going to be a tough summer, but both companies are relatively financially secure, compared to what they were," said Helane Becker, an analyst with Drexel Burnham Lambert. "It's an unfortunate short-term occurrence, but I don't think it's going to permanently damage them. Of course, it will impede their growth, but they're not going out of business."

Both carriers are taking steps to offset the losses. Their officials say they are improving security and trying to reassure travelers about the extent of their security measures. Pan Am last week invited about 100 corporate travel people in for an off-the-record briefing about some of the security measures that it is taking. The airline will not comment on many of the measures that it claims to be taking for fear of making them less effective.

Can't Reveal Steps

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