FLUG REVUE May 2003: Airlines hit by Iraq war

IRAQ WAR DEALS HEAVY BLOW TO AIRLINES

By Volker K. Thomalla

Long before the outbreak of the Iraq war, the airline CEOs – including CEOs of American carriers – were already warning against the conflict. It would put a further strain on the already weak situation of the traditional airlines and, if it were to extend for any length of time, it would have unforeseeable consequences for the global airline industry. The war is now under way, and the passengers are responding just as expected: by travelling a lot less.

The major American carriers are adjusting their capacity to demand and taking aircraft out of service. But the ramifications will continue for some time. Jobs will be shed, and redundancies already announced last year will be accelerated. Continental plans to make a further 1,200 of its workforce redundant by the end of the year, American Airlines is slashing capacity across its network by six percent – and this is just the beginning, so the airline stresses. United Airlines is cutting seat capacity offered by eight percent, Delta Air Lines and Northwest Airlines by as much as twelve percent. While all the companies expect to retain all the destinations they currently serve (since the cutbacks are mainly to be implemented through lower frequencies), nevertheless it is inevitable that they will start pulling out of unattractive markets and abandoning destinations if the conflict is prolonged. Continental CEO Gordon Bethune described the present situation as the “worst financial crisis of the airlines in the history of aviation”.

In Europe, the situation may not yet be as dramatic as in the USA, but the effects of the war are also pounding the European airlines. Lufthansa plans to continue services to all its present destinations even though on 25 March it announced a reduction in capacity on its intercontinental routes. Seven more aircraft with the distinctive Lufthansa “crane” on their tails are to be taken out of the active fleet and parked. Expansion plans drawn up only recently, for example, on its Asian routes, are now having to be shelved.

As the national carrier of one of the partners in the invasion coalition, British Airways (BA), which traditionally has derived a large proportion of its revenue from transatlantic connections, has been hit twice over. A BA spokesperson commented, “We are examining our entire flight schedule in the light of what is going on in the Gulf.” Route cutbacks and further job cuts are inevitable at BA.

ICAO president Dr. Assad Kotaite said, “The negative effects of the war on the airlines are very serious.” ICAO is working on the assumption that the Iraq war will add a further $10 billion to the airlines' losses. This will be life-threatening for a number of airlines if they do not receive state support. Contacts in the USA say that the American government is once again considering direct financial aid for the beleaguered US airlines, as was provided after 11 September 2001.

The EU Commissioner Loloya de Palacio for her part has announced that she is in favour of relaxing the slot allocation regulations at European airports. If the EU agrees to do this, the airlines may expect an extension of grandfather rights this summer. This would mean that the airlines kept their slots even if they prune their flight schedules and do not use their slots. Such a dispensation would enable the European airlines to rapidly adapt their capacity without losing strategically important take-off and landing times at airports. This would definitely be a help at the present time, but without passengers the slots will be of little use in future either. In principle there are other ways that the EU could help the airlines, but at present Loloya de Palacio does not see any need for direct financial assistance.

From page 4 of FLUG REVUE 5/2003

Last updated 7 April 2003

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