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War Fears Take Toll on Major Airlines

United and US Airways may find it is impossible to emerge from Chapter 11, industry analysts say.

March 19, 2003|James F. Peltz | Times Staff Writer

With the possibility of war taking a huge toll on U.S. airlines, there are growing fears that some won't survive.

Already battered by the weak economy and the post-Sept. 11 travel slump, the airline industry is in increasing trouble as skittish travelers postpone or cancel trips.

Continental Airlines eliminated several transatlantic flights Tuesday, citing reduced demand, and all carriers braced for the falloff in travel to intensify once the fighting begins.

Lagging ticket sales, combined with rising costs for fuel, insurance and security, have left the industry in its worst condition since it was deregulated 25 years ago.

For The Record
Los Angeles Times Thursday March 20, 2003 Home Edition Main News Part A Page 2 National Desk 1 inches; 48 words Type of Material: Correction
Airline woes -- A headline in Wednesday's Business section on an article about the effect of impending war on airlines incorrectly stated that analysts said United Airlines and US Airways may find it impossible to emerge from Chapter 11 bankruptcy protection. The analysts were referring only to United.

After losing a staggering $11 billion last year, airlines could lose $7 billion to $10 billion this year -- perhaps more if the war were to drag out.

Speculation is mounting that AMR Corp.'s American Airlines, the world's largest, could file for bankruptcy protection by summer. Two carriers, UAL Corp.'s United and US Airways, are in bankruptcy reorganization. And United, the biggest operator at Los Angeles and San Francisco international airports, might not emerge from Chapter 11 and could be liquidated instead, some analysts said.

Whether United will make it out of Bankruptcy Court "is still a really big question," said Jon Ash, managing director of Global Aviation Associates, a consulting firm in Washington. The airline said this week that going out of business "is a distinct possibility" if it doesn't secure wage cuts fast enough to offset the loss of passenger revenue.

Other carriers, such as Delta Air Lines, Northwest and Continental, are desperately trying to save cash in case more travelers stay home.

The airlines are begging Washington for help, and Transportation Secretary Norman Y. Mineta said Tuesday that the Bush administration "will be ready to move very quickly" to support the carriers "if the need arises." Mineta, speaking at an aviation conference, offered no details.

Rep. James Oberstar of Minnesota, the ranking Democrat on the House Transportation Committee, today plans to introduce a bill to help airlines deal with the war's blow.

The bill would reimburse the airlines for their heightened security costs, cap their war-risk insurance premiums, release oil held in government reserves to ease soaring fuel costs, and make U.S. loan guarantees available to the airlines for fuel purchases.

Certainly, many of the industry's problems have nothing to do with Iraq. Airlines such as United and American are saddled with operating costs, including labor expenses, that are much too high considering today's level of travel and ticket prices, many analysts say.

Indeed, some observers say that for all the damage a war would do, it would hasten the restructuring needed for the big carriers to survive.

There are bright spots: low-cost, low-fare airlines such as Southwest Airlines, JetBlue Airways and AirTran Airways, which are making money and are confident they can survive a drop in demand. At JetBlue, impending war has caused "a bit of softening with bookings, but it's nothing too significant," airline spokesman Gareth Edmondson-Jones said. In fact, JetBlue on Tuesday announced new service from San Diego to New York starting June 26.

The continued health of low-cost carriers would bode well for California. Southwest is the largest intrastate carrier and JetBlue has frequent service from its West Coast base at Long Beach. And Atlanta-based AirTran, a major buyer of the Boeing 717 jetliner built in Long Beach, plans to add service to Los Angeles this summer.

Even so, airline turbulence could hurt the state.

United is expected to pay $39 million to Los Angeles in rent and LAX landing fees during the 2002-2003 fiscal year. It also has a major hub in San Francisco and employs about 20,000 people in California.

American, Delta, Southwest and others employ thousands of Californians, whose jobs could be in jeopardy if flight schedules are slashed. The industry's trade group, the Air Transport Assn., last week said a "most likely" war scenario would prompt the airlines to slash 70,000 more jobs and 2,200 daily flights.

United Airlines has said it would shrink further -- meaning more employee layoffs -- if a war were to spark another drop in travel. Northwest echoed that forecast Tuesday.

War would crimp LAX's effort to recover from the post-Sept. 11 drop in travel, said Jack Keady, an aviation consultant in Playa del Rey. "In terms of domestic passengers, LAX will never be as big as it has been in the past," he said, noting the airport also faces growing competition from Southwest's operations at Ontario and JetBlue's growth at Long Beach.

As the chance of war has grown more likely, passengers have been flying shorter routes and avoiding trips across the country or across the ocean. But long lines at Southwest's California terminals in recent days show people are willing to fly to places close to home, such as Burbank to Oakland.

Staff writer Jennifer Oldham and Times wire services contributed to this report.

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