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Airlines were already having a bad year. Now, after the deadly hijackings of four aircraft, things have gotten much worse. Skittish travelers will try their best to avoid flying, probably for months, and airlines will have to spend hundreds of millions, to boost security. That means the industry is unlikely to turn a profit again until at least 2003. Although American Airlines and United Airlines, which lost two jets each and 266 people, may be hardest hit, no airline will be untouched by the events of Sept. 11.
Even before the terrorist attacks, airlines were suffering big losses from a falloff in high-fare business travel compounded by rising labor and fuel costs. Just four days earlier, AMR, parent of American Airlines and Trans World Airlines, warned it would lose "considerably" more in the third quarter than the $105 million it lost in the previous three months. Analysts then predicted the industry would lose as much as $3.5 billion this year. As for next year, the Air Transport Assn. warned that losses could approach $2 billion. After the hijackings, those numbers will almost certainly rise. "It's one really disastrous thing on top of what was already a difficult year," says Michael E. Levine, a former airline executive who's now a Harvard University law professor.
As consultants and analysts try to determine the long-term impact of the hijackings, they're looking back to the Persian Gulf War in 1990-91. Then, as now, the economy was in deep trouble. Oil prices were surging, and a frightened public was refusing to fly. The industry lost $13.1 billion over five years -- more than it had earned since the start of commercial aviation.
SHORTING SECURITY. The impact from this latest catastrophe could be as great or greater, since it involved hijackings in the U.S. on domestic flights, something once considered unthinkable. Kevin P. Mitchell, chairman of the Business Travel Coalition, conducted a survey of corporate members on Sept. 11. Of the 187 who responded, 62% said they would prohibit any travel until at least Sept. 16, and 88% predicted employees would voluntarily curb travel after that.
Although crashes have hastened the collapse of airlines in the past, analysts say both AMR and UAL, United's parent, will be able to stay in business. Even with their outsized losses this year -- each may lose about
$1 billion -- they are the world's No.1 and No.2 airlines and have decent cash flow, peerless route structures, and strong customer loyalty programs. Neither company would comment on the crashes' financial impact.
The deadly crashes prompted the Federal Aviation Administration to halt all air travel in the U.S. -- a first. Some flights resumed Sept. 12. Once the FAA allows all planes to take off again, it likely will be days before airlines can reassemble their fleets and crews. Airport security will be tighter, travel will be slower. The Transportation Dept. banned curbside check-ins late on Sept. 11. That was just one way airlines shorted security in favor of convenience. "As we've increased efficiency by decreasing human interaction, we have to ask, 'Have we made ourselves vulnerable?'" says Marianne McInerney, executive director of the National Business Travel Assoc.
WAGES OF FEAR? Airlines will be under pressure to improve safety in other ways. Typically, they have contracted out security to firms that pay their guards little more than minimum wage. Now airlines will have to offer higher salaries to attract better-qualified screeners. And by the end of this month, the FAA will begin to regulate security companies. Eventually, the heightened security and added personnel will mean higher fares.
The decline in ticket sales and the increase in expenses could push some smaller carriers over the brink. Midway Airlines Corp., which had declared bankruptcy in August, went out of business on Sept. 12. Three other discount airlines have gone bust in the past year. "Some of our smaller brethren may not make it," says Samuel D. Addoms, chief executive of Frontier Airlines Inc. In the airline industry, things just went from very bad to horrific.
By Michael Arndt in Chicago and Lorraine Woellert in Washington
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