Air Transport World

Stormy weather: SARS and the war in Iraq combine to deal a one-two punch to an industry still reeling from 9/11 and the collapse of business travel. (Analysis).

The old joke that "If it weren't for bad luck, doubly applicable to the airline industry this we wouldn't have no luck at all" became spring. As the long-anticipated war in Iraq moved from the talking to the fighting stage and fuel prices soared, airline battle plans were thrown into disarray by a mysterious epidemic that crippled traffic in the Asia/Pacific region, heretofore the only part of the world to come close to a full recovery since 9/11.

In an industry still reeling from the seismic shifts to the business environment that have occurred since the end of 2000, the impact of the war and Severe Acute Respiratory Syndrome was like a one-two punch, driving Air Canada to the mat and sending Cathay Pacific to its knees. Around the world, network carriers and their employees endured another round of layoffs, route reductions, order deferrals, aircraft parkings and general belt-tightening.

US airlines, at the center of the storm, experienced double-digit traffic declines following the March 16 Azores Summit that set the US and UK on a firm path towards invading Iraq. Over the next 10 days, they announced plans to eliminate 10,000 more jobs as service was reduced in response to the situation.

Speaking to the International Society of Aircraft Trading early last month, Continental Airlines Chairman and CEO Gordon Bethune estimated that the war will cost his airline "$200 million in losses" this year. JP Morgan analyst Jamie Baker calculated that travel avoidance added as much as $1.1 billion in operating losses to what already shaped up to be a disastrous first quarter for US airlines. He forecast that the industry will report operating losses totaling $3.5 billion for the three months ended March 31, roughly comparable to the $3.8 billion lost in the 9/11-impacted fourth quarter of 2001.

Prior to the onset of fighting, the US Air Transport Assn. predicted that under the "most likely scenario," a conflict with Iraq would add $4 billion in red ink to an industry already expected to lose $6.7 billion in 2003. Admittedly, ATA based its assessment on a three-month war, which was probably way too pessimistic as heavy fighting looked to be over by mid-April. Still, that forecast also was made before SARS emerged as a major threat to travel and tourism. The SARS impact was readily apparent from a review of data that showed Asia/Pacific traffic falling nearly as fast as transatlantic travel as the public became more aware of the disease.

For example, in the first week of war (March 17-23), ATA data showed US airline traffic declining 10.5% year-to-year overall, with the largest impact being felt on the Atlantic where RPMs were down 24.5%. Pacific RPMs dropped 13.1% in the same period. Two weeks blizzard of media cove later, following a coverage about SARS and, the issuance of travel advisories by the World Health Organization, weekly traffic was down 17% year-over-year with the Pacific leading the way with a decrease of 25. …

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