IN A report released earlier this week by the Air Transport Association (ATA), airlines are predicting that the pending war with Iraq will markedly accelerate the already precarious economic situation confronting the industry.
According to the report, 'Airlines In Crisis: The Perfect Economic Storm', economic damage could be so severe that "there is serious risk of chaotic industry bankruptcies and liquidations" and "the prospect of a forced nationalisation of the industry is not unrealistic."
"The economic risks go far beyond the airline industry - the stakes for the entire United States economy are extremely high," said ATA President and Chief Executive Officer James C. May. "Airlines have supported decisions taken by the U.S. government in the past, and we do so now. Yet, we know from the first Gulf War that there will be serious economic consequences for the airline industry. The report we are releasing reviews the past and examines the impact of the pending war. Without government action, the outlook for the airline industry is bleak."
Going into the first Gulf War, the airline industry was strong economically, reporting net profits from 1984 through 1989 of US$3.9 billion. At that time, airlines also had adequate cash reserves and access to capital markets. Following the war, however, traffic plummeted, causing the industry to shrink significantly. It took the airlines four years to recover from a war lasting fewer than 50 days. In the end, the airline industry lost over $13 billion, eliminated 25,000 jobs and seven large and medium-sized airlines were forced into bankruptcy - four of which liquidated.
The state of the airline industry today is dire: since 9/11, airlines
have lost US$18 billion, and even without open hostilities in Iraq, 2003 losses of US$6.7 billion are projected. February 2003 fuel prices reached US$1.20 per gallon, up 108 per cent over the previous year. Additionally, airline cash reserves are nearly exhausted and the ability to borrow is virtually non-existent. A major contributing factor to the present economic state of the airlines is the vast increase in government-imposed costs. Since 9/11, taxes, fees and unfunded mandates have added US$4 billion annually. "To try to meet the economic reality of the past two years, carriers are cutting tens of billions of dollars in expenses, have laid off 100,000 employees and have taken several hundred aircraft out of service," continued May. "The nation's air carriers will continue to do all we can, but we fear that the consequences of this war will be severe."
The report outlines four scenarios for possible impact on the airline industry. The most likely scenario projects 2003 airline losses of US$10.7 billion (an increase of US$4 billion over the 'base line' case), the loss of 2,200 daily flights and 70,000 additional jobs. The more severe scenario delineates losses of US$13 billion, a reduction of 3,800 daily flights and the elimination of 98,000 additional jobs. Massive economic damage to commercial aviation also will severely impact the overall economy. Multi-billion dollar losses mean air service cuts to many smaller and medium-sized communities and more unemployment throughout the economy. The tourism and hospitality industries stand to lose almost four jobs for every airline employee forced into the unemployment line. The Air Transport Association of which Air Jamaica is a member is the trade association for U.S. airlines and its members transport over 95 per cent of all the passenger and cargo traffic in the United States.
