Airlines Plan Service Cuts

War falloff prompts U.S. majors to reorganize operations

By: Jerry Chandler

War is being felt in the U.S. air industry. As business declines, the majors are cutting service, low-cost carriers are pushing ahead to capture market share and the U.S. government is readying support to keep at least some of the struggling airlines aloft.

“The geopolitical uncertainty created by the war on Iraq has significantly affected current booking levels,” said Stefan Pichler, chairman and CEO of Thomas Cook.

Summer bookings at the giant travel firm are down by 9.2 percent compared with a year ago.

American corporations also are slashing travel, particularly overseas. A survey of major companies by the Business Travel Coalition found:

21 percent of corporations have banned international travel for some period or until further notice;

33 percent of corporations would consider a ban if circumstances worsen;

54 percent of corporations have tightened pre-approval processes for international travel;

48 percent of corporations already had adjusted domestic U.S. travel policy in anticipation of war with Iraq.

And, 65 percent of companies have told employees that management will not pressure them to travel during hostilities.

In response, airlines are cutting flights, including:

American is reducing its flying by 6 percent, trimming selected service. It also postponed its new Los Angeles-Tokyo service for two months and the launch of a second daily Dallas/Fort Worth-Tokyo nonstop.

Delta slashed 12 percent of its capacity, although specifics were not available at press time.

Northwest also is cutting 12 percent of its flights, mostly those to Asia/Pacific and Europe.

United, fighting for its life in Chapter 11, said it is reducing, but not eliminating, service to Amsterdam, Frankfurt, London, Tokyo, Paris, Taipei and Brussels and will cut 104 domestic flights as of April 6.

As the majors reduce flights, the low-fare carriers continue to lay them on, sensing, perhaps, that now is the time to pick up market share.

JetBlue shows no sign of postponing the June 26 launch of nonstop San Diego-New York JFK service. And AirTran still plans Los Angeles, Las Vegas, and Denver service to Atlanta.

And in Washington, Senate Majority Leader Bill Frist, R-Tenn., said he expects Congress to pass some kind of aid for the aviation industry.

“It may come in the form of some reduced security surcharges,” said Brian Streeval, an airline analyst with the Boyd Group, an aviation consultancy in Colorado. “Perhaps the government will cover the $2.50 security surcharge.” Streeval does not expect the government to reduce taxes, which can represent as much as 25 percent of the price of an average ticket.

“The Air Transport Association came out and said it’s looking at losses of $10 billion a year. I just don’t see the government covering 100 percent of that gap,” he said.

Nor does Aaron Gellman, a professor at The Transportation Center at Northwestern University and at the Kellogg School of Management.

“The airlines deserve some relief from security-related costs,” he said. “That’s the kind of help the government can provide without courting any real international problems.”

“I think if the money goes much beyond security, it will be a point of contention with, particularly, the European countries,” he said, noting that they oppose subsidies.

For the time being, Gellman said he sees profitable, high-yield “international traffic suffering quite uniformly, and very heavily. And the domestic bookings aren’t doing as well as they did before the war broke out.”

To be sure, there are other, far more significant reasons to hope for a quick, successful end to the war. The fate of the U.S. airline industry, said Gellman, “is just another one.”