Uneasy jets: the 9/11 terrorist attacks on the US proved ruinous for many of the traditional long-haul airlines, but low-budget operators are prospering at their expense--for now. As war in the Middle East looms, Cathy Hayward asks the experts what the future holds for an industry still in a state of extreme uncertainty.
| Author | Hayward, Cathy |
| Position | Cover Feature The Airline Industry |
Life in the airline industry has been especially turbulent over the past two years. It was almost grounded by the combination of overcapacity, the events of 11 September 2001 and the risk of further terrorism. And the outlook is looking even bleaker. A war in Iraq could push fuel prices to unseen levels and issues such as spiralling insurance costs and the threat of deep-vein thrombosis claims are threatening to send costs sky-high and share prices diving.
Many airlines have blamed the terrorist attacks on New York and Washington as the cause of all the industry's ills, but fundamental weaknesses were there long before 11 September, according to Pearse Reynolds, general manager of corporate travel in the UK and Ireland at American Express. "We started noticing a downturn in the first quarter of 2001 because of overcapacity in the market," he says. "There were simply too many seats, aircraft and airlines for the demand. The attacks just sharpened that decline"
Giovanni Bisignani, director-general of the International Air Transport Association (IATA), agrees: "Before 11 September the industry was showing a net loss on international services of almost 2 billion [pounds sterling]. The impact of 11 September was extremely harsh on an already frail operating environment."
Less than a week after the attack, Continental Airlines made 12,000 employees redundant. Within days, American Airlines, US Airways, British Airways and Virgin Atlantic followed suit, cutting 10 per cent of their workforces. Later in the year Swissair and Belgium's Sabena went bust. In May 2002 BA announced a 200 million [pounds sterling] loss, compared with a 150 million [pounds sterling] profit in 2001. Almost a year after the attacks, US Airways filed for bankruptcy protection after racking up losses of $2 billion. And United Airlines, the world's second-largest carrier, was forced to do the same in December.
But it was not all doom and gloom. In the low-cost sector easy Jet saw its profit before tax rise 78 per cent to 71.6 million [pounds sterling] for the year ending 30 September 2002. And its passenger numbers were up 60 per cent to 11.4 million. These figures include two months of financial data from Go, which Easy Jet purchased in August 2002. Passenger numbers at Irish airline Ryanair increased by more than 40 per cent to 14.5 million last year and it reported record profits of 96 million [pounds sterling] for the first half of 2002. And Virgin Express, the no-frills airline partly owned by the Virgin Group, announced a 50 per cent...
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