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Airline Losses Hit Record $2 Billion; Gulf Crisis Cited

January 11, 1991|From Reuters

NEW YORK — Overwhelmed by high-priced fuel and a deepening recession, U.S. airlines lost a record $2 billion last year--more than twice the previous record--the industry's main trade group said Thursday.

With the slumping economy already bearing down on the nation's airlines, the soaring cost of jet fuel after the Iraqi invasion of Kuwait proved devastating, the Air Transport Assn. said.

"The situation hasn't looked good all year long, and then when we had the Persian Gulf crisis in August and our fuel prices went through the roof, that basically wrote the final on the year for us," said David Swierenga, an economist for the trade group.

The airlines are expected to lose about $1.7 billion in the fourth quarter alone, after losing $240 million in the first nine months of the year, the trade association estimated.

The projected total loss of $2 billion for the year would be more than double the industry's previous record loss of $915.8 million, posted in 1982.

"The results for the year are the worst that our industry has ever endured," Swierenga said. "We've gone through some tough times in the past, but a $2-billion net loss--there's just nothing comparable in our history."

Profits plunged even though passenger traffic grew to a record high, with 457 billion passenger miles clocked, Swierenga added. While a record, the figure was up only modestly from the previous year.

The airlines were already weakened by more than a decade of tough competition unleashed by federal deregulation, experts said.

Despite the lethal combination of higher energy costs and a sagging economy, airlines were reluctant to raise fares or cut back their flight schedules for fear of losing customers in the more competitive industry, Swierenga said.

"That's a formula for declining profits," he said. "Nobody had a good year."

The most recent casualty of hard times was cash-starved Pan Am Corp., which filed for bankruptcy Tuesday.

The filing marked the second time in a matter of weeks that a major carrier fled to the protection of bankruptcy court. Continental Airlines Inc. filed for Chapter 11 bankruptcy in December.

A third major carrier--Eastern Air Lines Inc.--has been struggling to emerge from bankruptcy protection since March, 1989.

The prognosis for the survival of those carriers--and other financially weak airlines--depends heavily on the impact of fuel costs and the economy, said Mark Daugherty, an analyst with Dean Witter Reynolds.

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