Airline Crisis

As predicted by travel experts, the travel and tourism industries are facing hard times.
The global economic slow down coupled with the tragic events in New York has had severe implications for the travel industry, which is always likely to be especially vulnerable during trying times. Following the tragic events that took place on September 11th, we are now witnessing what could be described as a period of unstable consumer confidence. This is likely to be exacerbated by psychological features that can arise from lingering shock. A fear of flying and a general uncertainty are likely symptoms of last week’s events. It is now consensus that fewer people will be travelling and when they do they will be spending less.


Since last weeks attack, reports from travel sites have confirmed these suspicions. Priceline.com said that attacks have resulted in a significant decrease in the company’s forward travel bookings, driven primarily by reduced customer demand, interruptions in availability associated with anticipated schedule changes and an increase in refunds of previously booked reservations.


On the 20th of September, Biztravel, online business travel site, closed its operations. Vice President Marc Kaelin stated “Biztravel has been unable to overcome challenges of economic downturn, the further reduced demand for travel resulting from the tragedy of September 11th and the ever-increasing economic pressure from the travel industry”.


In a survey commissioned by Yesawich, Pepperdine and Brown, leading forecasters of travel habits it was found that nearly 2/3 of American business and leisure travellers say that their plans will not be determined by the events of September 11th. 67% of business travellers said that events won’t influence their future business trips. It is thought that international travel will feel the greatest impact. 50% of business travellers say that they will take fewer overseas trips.

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The airline industry has been in a major slump since the suicide hijackings. Vast cutbacks have been made since last week. Delta Airlines Chairman Leo Mullin told the senate Commerce Committee that without government help, “the future of aviation is threatened”. He indicated that several major airlines are on the verge of bankruptcy. USA and Canadian airlines have suffered more than 100,000 job losses and blame this on the attacks. BA’s operating profits were cut by £40 million in the two weeks following the attacks.

Mr. Bush stated “One of my concerns is that this terrible incident has convinced many Americans to stay at home.”  It is not, however only the US that has been affected. The pain is seen to be spreading to Europe.

 

The listings below indicate of the severe impact of the events of last weeks attacks on airlines.


 American Airlines owner AMR Corporation, cut 20,000 jobs, shared between American and a number of smaller subsidiaries.

 United Airlines cut 20,000 jobs.

 Aircraft giant Boeing plans to cut up to 30,000 jobs by the end of next year

 US Airways cut 11,000 jobs and slashed its schedule by 23%.

 Continental cut 12,000 staff, reduced its schedule by 20% and postponed the flotation of its ExpressJet unit. They have said they will go bankrupt without the government’s aid.

 United Airlines, Delta, Air Canada, American Airlines and American Air Trans all cut schedules by 20%.

 Northwest said they would announce cutbacks later this week

 Midwest Airways said it would abandon financial restructuring and proceed with bankruptcy immediately.

 Avionics manufacturer Honeywell said it would eliminate 12,000 jobs, almost 4,000 more than previously announced.

 British transatlantic carrier Virgin Atlantic shed 1,200 jobs.

 Dutch KLM and Spain`s Iberia both warned the attacks could lead them to report losses.

 German Lufthansa cut three of its transatlantic routes and said it was freezing hiring.

 Belgium`s Sabena has said that it will not last beyond the end of the year

 Scandinavia`s SAS, which saw its entire board resign on Monday due to an unrelated cartel scandal, said it would cut capacity in relation to the US crisis.

 Irish airline Aer Lingus announced that it was to cut its operations by 25% and would let go more than 600 temporary staff.

 Air France said it was freezing hiring and retiring 17 planes from service.

 Swissair said the freezing of air travel last week cost it 65m Swiss francs($41m, £28m). It expects its transatlantic passenger numbers to fall 10-15%,and will   announce restructuring measures in October.
Some estimates suggest that customer downturn is costing the US airlines $1 bn a day.
Insurance

The terror attacks represented worst case scenario for the insurance industry. One anonymous analyst quoted “I do not think anyone was insuring thinking someone would use aircraft as missiles.”

Insurance companies now want to see a dramatic improvement in airline security before they will reduce premiums. They are unlikely in the foreseeable future to ease the terms under which they offer cover.

Currently the plan is to cap third party war and terrorism insurance at $50m.

In contrast, airlines themselves face potentially unlimited liability, and will happily accept support as long as governments are prepared to offer it. They need help in tackling increased insurance, fuel costs and tighter security.
Radical measures are required.

It seems that the call for government aid is now general. And the rush to plead for government help with spiralling costs has accelerated.
“We don`t know the extent to which the measures are going to affect us yet.” Said a spokesman for Virgin Atlantic, 60% of whose flights are trans-Atlantic. “We expect governments to show understanding if they impose new measures on us.”


President George W Bush has signed a $15bn aid package for the country’s airlines industry, to ease this financial crisis stemming from the attacks. Bush stated that “the legislation will provide urgently needed tools to assist the safety and immediate stability of our nation’s commercial airline system”. This aid comes on top of $3bn to upgrade security in airplanes and airports. Bush’s statement that “the terrorists responsible for this chaos should not be given the satisfaction of shutting down American business, or thwarting their way of life” encapsulates a strongly felt sentiment throughout America.

 

European union officials will be looking closely at US aid package to see if they need to be matched in Europe. But further action will depend on talks between carriers and governments, not least because expensive measures - such as reinforcing cockpit doors or adding closed circuit television - have yet to be introduced.

Because direct assistance could turn out to breach European Union rules on state aid, many are hoping for a co-ordinated response - and perhaps for a relaxation of the tight limits on mergers within the airline industry.


The financial bounty being held out - $15bn in cash and loans to US airlines, together with an unspecified amount from a variety of states in Europe to their own airlines does mean that other governments are now under pressure to follow suit.

For example, in Asia, China`s airlines fly relatively few international routes, which limits their exposure to the “war risks” cover which is proving to be the sticking point for aviation insurance. But even they are still looking for help.


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