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- <text id=91TT0399>
- <title>
- Feb. 25, 1991: Fighting For Their Lives
- </title>
- <history>
- TIME--The Weekly Newsmagazine--1991
- Feb. 25, 1991 Beginning Of The End
- </history>
- <article>
- <source>Time Magazine</source>
- <hdr>
- BUSINESS, Page 65
- Fighting for Their Lives
- </hdr><body>
- <p>The world's airlines, battered by war and recession, slug it out
- in a brawl that will reshape the industry for years to come
- </p>
- <p>By Thomas McCarroll
- </p>
- <p> Planning a trip? You'll be happy to know that Pan Am,
- American and Northwest airlines have drastically cut fares for
- travelers buying tickets before March 1. British Airways would
- like to cut transatlantic fares one-third, and TWA, USAir and
- Pan Am want to cut them that much or more, if the government
- lets them. Air carriers are offering dramatic bargains--and
- not out of benevolence. They're desperate.
- </p>
- <p> In 1990, their all-time worst year, the world's airlines
- lost a record $3.5 billion and nearly half their passenger
- traffic to the threat of war and the pain of recession, and
- they figured things couldn't get any worse. They were wrong.
- With bombs falling in the Middle East and the world economy
- almost motionless, this year is shaping up as an even bigger
- disaster. From passenger airlines to aircraft makers, the
- aviation business is in a tailspin. Losses and failures are
- mounting, planes are flying half empty, and the transatlantic
- fare war is certain to create more ruin. Says Lee Howard,
- chief executive of Airline Economics: "This is the most serious
- crisis in the history of the airline business."
- </p>
- <p> The crisis signals an end to a decade of unprecedented
- expansion. Passenger travel, which soared to record levels in
- the aftermath of deregulation, is paralyzed by corporate
- belt-tightening and fear of terrorism. So far this year,
- international traffic is down 40%. In the U.S. 2 of every 5
- seats are flying empty. As the war and the recession roll on,
- carriers are lightening their loads by suspending unprofitable
- routes, flying remaining ones less often and cutting costs.
- Airlines have reduced new orders for aircraft as much as 50%;
- 44,000 airline workers worldwide, from machinists in Kansas
- City to flight attendants in Amsterdam, have lost their jobs
- since January. USAir, which reported $221 million in losses for
- the fourth quarter, last week laid off 3,600 workers. Belgium's
- national airline, Sabena, and Spain's flagship carrier, Iberia,
- each announced plans to eliminate more than 2,000 jobs. British
- Airways, which suffered a 72% profit decline last quarter, cut
- 4,600 jobs while mothballing five Boeing planes worth $1.5
- billion.
- </p>
- <p> Even before Iraq invaded Kuwait, America's stalling economy
- was forcing the U.S. industry to consolidate. With passenger
- revenues slowing, the airlines separated into two groups:
- healthy carriers with strong balance sheets, like American,
- United and Delta, and those weighed down by excessive debt from
- buyouts and overexpansion, such as Pan Am, Eastern, TWA and
- Continental. To remain aloft, the weaker carriers sold routes,
- planes and other assets piecemeal to their stronger
- competitors, widening the chasm. Desperate for cash, Pan Am
- offered its London routes to United for $290 million, while
- financially troubled TWA agreed to unload its Heathrow landing
- rights to American for $445 million.
- </p>
- <p> The Middle East crisis and the resulting rise in jet-fuel
- prices hastened the consolidation. Fuel ranks second only to
- labor in airline expenses, accounting for about 20% of
- operating budgets. Overleveraged carriers couldn't take the
- hike. After its annual fuel costs rose 33%, to $1 billion,
- Continental failed. Faced with a similar bill, Pan Am filed for
- bankruptcy a month later. Last week Northwest raised the
- possibility of merging with a stronger airline or selling its
- lucrative Pacific routes. Analyst Julius Maldutis of Salomon
- Brothers says, "The industry is being separated into the big
- eagles and the sitting ducks."
- </p>
- <p> The still regulated airlines across the Atlantic are asking
- the European Commission to reduce red tape, approve joint
- operating ventures and allow the carriers to raise fares.
- European airline traffic has dropped 25% since January. Italy's
- Alitalia, with its transatlantic business down 30%, wants
- government assistance for workers scheduled to be laid off.
- </p>
- <p> The surest way to bring back passengers is also the most
- painful: a fare war. British Airways fired the first shot Feb.
- 9 with its plan to cut transatlantic fares for summer travel
- one-third. U.S. carriers responded with fare cuts of up to 50%,
- but U.S. Transportation Secretary Samuel Skinner rejected all
- cuts, including the British Airways request. The decision is
- widely viewed as retaliation for London's foot dragging in
- approving the sale of Pan Am's and TWA's London routes. TWA
- said it will be forced into bankruptcy if the sale isn't
- approved soon. Skinner permitted Pan Am fare cuts for domestic
- and international flights before March 1, an offer that
- American and Northwest immediately matched. While consumer
- response has been positive, the impact on the industry will
- probably be negative. Says David Swierenga, airline economist
- at the Air Transport Association: "The fare war will only
- increase the bloodshed."
- </p>
- <p> The industry received a boost last week when First Lady
- Barbara Bush took a commercial flight to Indianapolis to show
- terror-stricken Americans that air travel was safe. Said she:
- "I'm not afraid to fly." Her gesture may diminish fears, but
- it will take a stronger economy and probably an end to the gulf
- war to get the industry--big eagles and sitting ducks alike--airborne again.
- </p>
-
- </body></article>
- </text>
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