U.S. strikes could stall momentum of airlines

Brad Foss

Tuesday, Oct. 9, 2001 | 9:35 a.m.

NEW YORK -- Just as airlines began luring travelers back to the skies with tighter security and lower fares, the industry's much-needed comeback could be threatened by the U.S. airstrikes on Afghanistan.

Preliminary industry data show worldwide demand for air travel rose all week long until Sunday, when the United States took its first retaliatory military action since the Sept. 11 terror attacks in New York and Washington.

"In the immediate future, people are going to be wary of flying," said Bob Abrams, a travel agent at Valerie Wilson Travel Inc. in New York. "But I've seen this stuff go away in a month."

Shares of the six-largest U.S. carriers staged a mild turnaround in recent weeks, but remain between 25 percent and 56 percent below pre-attack levels.

U.S. airlines have laid off more than 90,000 employees in the past month and received a $15 billion government bailout that is expected to prevent all but a few of them from going bankrupt by next summer.

Travel demand grew incrementally last week before taking a noticeable slip on Sunday, according to the Air Transport Association, a Washington-based trade group for the largest carriers.

Year-to-year comparisons showed demand -- as defined by passenger revenue miles, or one paying passenger flown one mile -- fell 31 percent Monday, 29 percent Thursday and 24 percent by Saturday. On Sunday, though, the year-to-year decline in demand was back at 30 percent.

The decline in demand between Saturday and Sunday could partly be explained by the fact that airlines dropped the Saturday night stay requirement last week as a way to attract business travelers.

Even so, "there's obviously something going on here," said John Heimlich, an economist for the industry association.

War-related hiccups are not new to the industry, analysts said, citing the similar ups and downs in air travel and airline stocks during the Gulf War a decade ago. Back then, the nation was also in the midst of a severe economic downturn.

David Stempler, president of the Air Travelers Association in Washington, said: "it doesn't take too much to get people uneasy about travel."

Before Sept. 11, airlines were having difficulty filling seats because of the country's poor economic outlook. The problem worsened after the attacks spurred fears among the traveling public about aviation security. Once the industry cut capacity by 20 percent, domestic flights were still half empty by the end of September.

The industry's situation began improving, though, as carriers offered fare incentives to business and leisure passengers and the evidence could be found at airports, where strict security measures forced travelers to endure long lines.

Shares of airlines ticked upward during late September and the first week of October as investors viewed the stock prices of certain carriers to be undervalued.

But now, with President Bush's military response to terrorism under way, industry watchers said the slowly dissipating hesitancy toward travel could be stalled, at least temporarily.

"The comeback may be slowed down now," said Ray Neidl, airline analyst at ABN Amro in New York. "The momentum should come back, though, as long as there isn't another attack" on U.S. soil.

The fledgling comeback of airline stocks began faltering late last week as a U.S. military response to the Sept. 11 attacks appeared imminent. Wall Street analysts said they have seen this type of behavior from airline stocks before, albeit over a longer period of time.

"The day Iraq invaded Kuwait in (August of) 1990, airline stocks fell 40 to 50 percent," recalled Merrill Lynch analyst Michael Linenberg. Shares of major carriers bottomed out in November, but eventually regained much of that lost ground.

"Then they took another hit after the U.S. struck Iraq in January of 1991," Linenberg said.

Since World War II, 1991 was the only year in which global air traffic declined from the previous year, Linenberg noted. That 1.5 percent drop-off was due to the combined effects of the Gulf War and the weak economy, he said, adding that 2002 could be even worse. He expects a decline of 10 percent.