Air industry faces bleak outlook

Long delays will deter future travel by air

The atrocities committed by terrorists in the US will have a long-term impact on the airline industry, which is already under pressure.

The International Air Transport Association (IATA) has estimated that this week's flight cancellations will cost the air industry $10bn.

Air fares are going to go up because someone will have to pay for the change

Phil Butterworth-Hayes
Industry expert

Schroder Salomon Smith Barney has downgraded the entire European airline sector, saying the terror attacks were likely to have a "catastrophic effect" on airline profitability.

And losses are already mounting at Asian airlines, dealing a fresh blow to transport firms which are already reeling from the world economic slowdown and strong jet fuel prices.

US routes account for as much as 25% of all business of some Asian carriers, and All Nippon Airways said it was losing 60m yen ($502,200) a day on the cancellations.

Increased security

Tighter security measure now being introduced is likely to disrupt air traffic, hike costs and deter passengers, according to analysts.

In the near term US airports will be near paralysed, because they will go overboard on security

Peter Harbison
Aviation analyst

And industry experts say that some smaller airlines and airports will be forced out of business because of the cost of introducing these changes.

One industry expert dubbed the attack "the blackest day aviation has had," with other catastrophes, such as the 1988 Lockerbie bomb, paling in comparison.

The US has already introduced new measures including strict screening, a ban of checking in baggage outside the airport, and a total ban on knives and scissors.

And even tighter measures are likely to follow, with America's IATA saying it would like to see as many airlines as possible to introduce scanning systems which identify passengers by palm-prints or the iris of the eye.

European Union transport ministers may hold a formal meeting on Friday evening to discuss aviation safety and security.

'All sorts of restrictions'

"The Federal Aviation Administration will be imposing all sorts of restrictions on inbound flights," said Don Solon at Avmark International.

"It will probably have very expensive infrastructure cost implications," he added.

And delays in processing passengers will slash terminal capacity, probably forcing the busiest airports to scale down their peak-hour operations, according to analysts.

Studies have shown that even a one-minute delay for the average passenger could significantly cut terminal capacity.

"I think in the near term you are going to see US airports will be near paralysed, because they will go overboard on security," said Peter Harbison, an analyst at the Centre for Asia Pacific Aviation.

Bankruptcy fears

Many industry experts have already expressed concern about how easy it appeared to take control of the cockpit.

"There will have to be a complete rethink of the way the air travel business is conducted," said Phil Butterworth-Hayes, civil aviation editor of Jane's Information Group

Falling share prices from Monday close to Thursday midday

BA down 26%

Easyjet down 24%

Airtours down 16%

"Air fares are going to go up because someone will have to pay for all that change."

Mr Butterworth-Hayes also warned that alliances forged between airlines and US carriers would have to be rethought given the large expected downturn in passenger numbers.

"Lockerbie had a dramatic effect on aviation, with Pan-Am going out of business," he said.

"But this is far worse and is the blackest day aviation has had."

Tourist deterrent

The attacks are also expected to hit future bookings to the US, as tourists stay away.

First Choice and Airtours are among firms reviewing their holidays to US resorts.

"It is our focus to ensure the safety of our customers and staff and we will be reviewing our flying programme with the authorities," said a spokesman.

Tourism industries in countries outside the US are also expected to feel the effect as American tourists cut back on their international holidays.

As seen during the Gulf War, US tourists are likely to be concerned about becoming targets of terrorists when travelling outside their home country.

Falling shares

Travel firms and airlines saw their share prices plunge immediately after the news.

And although there has been a limited recovery, most shares are still well down.

British Airways has fallen to a ten year low and by Thursday midday was down 26% since Monday's close.

Airtours stock, which on Thursday was enjoying a mild recovery, are still 16% lower since the attacks.

And Easyjet - a low cost airlines which analysts fear will be amongst the worst hit - has fallen 24% and was still falling sharply during Thursday's morning session.

Several brokerages have downgraded their outlooks for flagship European carriers including Air France and Alitalia.

And US credit rating agency Standard and Poor's said it had placed on creditwatch negative the long-term debt of all US airlines, British Airways and Air Canada.