Keeping them in the Air

The aviation sector has been seemingly grounded after the terror attacks on the US. With increased check-in times, strict security searches and fear of war, air travel has been reserved for times of necessity. The decrease in both business and leisure travel has in turn affected other industries, including the tourism and hospitality industries. A slump in consumer confidence is said to be the long-term effect as the demand for tickets declines.

The World Tourist Organisation said that it could be several years before global tourism recovers from the attacks.

However, the short term threat to the airline industry needs urgent attention. Share prices in related stocks have plummeted. Reduced air travel, damage to aircraft, refunds and insurance claims all aggrevate the situation which might result in some airlines filing for bankruptcy.

United States carriers

In an effort to boost airline stocks and to make a statement about the stability of the country after the attacks, President Bush prompted the biggest single industry deal in the US. The President signed a bill to the value of $5 billion (5.5 million euro) in cash and $10 billion (11 billion euro) in loan guarantees, as well as state-backed insurance against war and terrorism risk for the next six months.

"The terrorists who attacked our country on September 11 will not shut down our vital businesses or thwart our way of life," Bush said in a statement after closing the deal.

Moreover, employee cuts are amassing to thousands seeing a massive increase in the industry's jobless rate. In the US alone, tens of thousands of airline staff are now jobless and some airlines have yet to make their financial futures public.

European Airlines

President Bush's act has prompted many other governments around the globe to follow suit. Thereby, keeping airlines and national carriers in operation despite dwindling ticket demand and the withdrawal of war risk coverage by commercial insurers. European Union finance ministers have agreed to providing similar war risk insurance relief for at least a month amounting to $50 million (55 million euro) in total.

They have however, stated that the EU is cautious of throwing individual lifelines to airlines already in financial trouble.

Airlines are being forced to take drastic measures to stay afloat financially. British Airways announced 7,000 job losses and a 10-percent cut in flights. Dutch airline, KLM has warned of capacity cuts and Air France increases ticket prices as insurance costs increase an expected ten-fold.

Switzerland's national air carrier, Swissair, said that it has to fight for its survival and needs up to $1.8 billion in new equity to survive. The airline had reported difficulty before the attacks but the attacks aggrevated the situation. Businesses and the Swiss government have urged the airline to develop a strategic long-term business plan before it can expect any financial backing.

Swissair has therefore announced a re-organisation of its services. It will completely integrate its flaship airline, Swissair, with its regional airline, Crossair, although the two will maintain their respective corporate identities. Moreover, it will make at least 3,000 of its employees redundant in the cost-cutting moves. This, after it announced that it was cutting 1,250 jobs last month.

Swissair has also said that it will reduce long-haul flights by 25 percent and will attempt to reduce the proportion of its passengers who transfer between flights. Profitable routes such as those to Asia and the Middle East will be maintained.

Economists are accusing certain airlines of using the current crisis as an excuse for pushing through job cuts which might not otherwise have been socially acceptable. "Some of the airlines are using the terror to shrink themselves back to health," Gustav Horn, economist at the Gernab Institute for Economic Research, told the Bild am Sonntag newspaper.

German's national carrier, Lufthansa, has described 2001 as a "lost financial year". However, stocks are reportedly picking up and the company announced at the end of September that the Federal Cartels Office has given the go-ahead to acquire a 49 per cent stake in Eurowings Luftverkehr AG. Lufthansa and Eurowings currently co-operate on national and intra-European routes.

According to a statement issued by Lufthansa, the carrier stated that it "can now no longer achieve its projected operating result of 700-750 million euros for 2001."

Lufthansa CEO and chairman Jürgen Weber said, "The aviation industry has been hit badly by the consequences of the terrorist attacks. It will require immense efforts on the part of all Lufthansa staff if we are to avoid an operating loss this year."

The airline shelved plans to order up to 15 Airbus A380s and four Boeing 747-400 wide-body jets. "Investment planning on this scale needs a sound basis," Weber said. In the course of the freeze on investments, all planned capital investments and current projects will undergo close scrutiny and, if necessary, be axed. There will also be further spending restrictions. In principle, Lufthansa will not recruit any new staff group-wide. In the medium term, human resources planning will be geared to the Group's financial development.

Urgent adjustments are also being made to its route network. The Berlin-Washington service will be discontinued and one flight pair each on the Frankfurt-New York and Frankfurt-Washington routes will be cancelled. These measures will remain in place until the end of the winter schedule in March 2002. In addition to the reduction in capacity, four long-range aircraft will be decommissioned.

Airplane manufacturers

This opens another can of worms, producers of aircraft are also expected to suffer. Boeing Company for example, announced last week it was cutting 20,000 to 30,000 jobs as airlines delay deliveries and cancel orders. The head of Boeing's commercial jet unit said he expected Airbus would also face pressure to cut jobs.

While Airbus had planned to increase deliveries to about 400-450 planes a year by 2003, Chief commercial officer of the European plane builder Airbus Industrie, John Leahy said it had not yet hired the additional staff and thus had a leaner operation. "There isn't anything like that (the Boeing job cuts) in the cards at Airbus because we haven't put the infrastructure in to get to 450 aircraft, so we have a flattening of our production," Leahy said.

Lufthansa had taken the decision to downsize its original flight offering before the terror attacks. It cited the continuing economic slowdown and rising cost pressure as reasons for the withdrawal of twelve short-range aircraft from its fleet. Due to considerably weaker demand in the wake of the attacks, also in the European market, Lufthansa is grounding further four aircraft. In its statement, the organisation also said that it reserves the right to decommission two more long-range aircraft and a further six short-range aircraft in the coming weeks.

Ticket prices

Ticket prices are expected to soar which will certainly not aid the slump in consumer confidence. "Tighter security requirements and procedures as well as the drastic rise in insurance premiums which has already been announced, a significant increase in ticket prices and cargo rates now seems inevitable," said Lufthansa in its statement.

The attacks are expected to add to the cost of air travel across the industry because of extra security measures. KLM Royal Dutch has begun charging $10 extra for each return flight. "It's a safety surcharge," a spokesman said. "We have taken a lot of measures to boost safety, and