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World's largest airlines react to war with cuts

Kathy Fieweger in Chicago | March 21, 2003 15:40 IST

Several of the world's biggest airlines announced cuts in jobs and flight schedules on Thursday, beginning what is expected to be a wave of reductions because of a slump in travel made worse by the Iraq war.

Bankrupt United Airlines, the world's No 2 air carrier, told employees to expect unpaid leaves and capacity cuts. Air Canada said the war underscored a need to cut 3,600 of 40,000 workers this year.

AMR Corp's American Airlines, the world's largest airline, said it would cut international flights by 6 per cent in April as an initial step because of the war, trimming some flights to Europe and Latin America.

"Even as we keep working, day in and day out, to keep this company afloat, we will have to trim some capacity as prices and supplies are impacted by the war," AMR chief executive Donald Carty told the airline's employees.

AMR is struggling to stay out of bankruptcy protection, a fate that has already claimed two major US airlines -- UAL Corp's United Airlines and US Airways Group Inc.

The US-led war in Iraq could not have come at a worse time for global airlines, which have lost billions of dollars since the Sept. 11, 2001, hijack attacks on the United States.

The war has hit airline bookings, especially international travel, and has left some airports quiet as travelers opt to stay home.

"International has been soft for weeks," said Carol Jouzaitis, a spokeswoman for the online travel site Orbitz. "Since Monday it's dropped sharply. The international schedules are all being adjusted."

During the 1991 Gulf War, transatlantic bookings also suffered the most. But the industry is in worse shape now than it was then, with margins squeezed further as low-fare carriers grab market share.

Anticipating customer wariness, airlines recently announced relaxed cancellation policies, giving passengers one free change of plans without being penalised.

Analysts called the move a smart one, given the uncertainty afflicting an industry reeling as never before.

"We would expect demand trends to continue to worsen for the US carriers," said Jamie Baker, an analyst with J P Morgan.

Signaling trouble

USAir, looking to emerge from bankruptcy at the end of March, said on Thursday that crucial talks on a new pension plan for pilots had reached an impasse.

Two days after clearing a milestone in its reorganisation plan, John Butler, the company's bankruptcy attorney, delivered a downcast report on operations at the No 7 airline, now under added pressure from the war.

Conserving cash, again

With the war under way, it was far from business as usual, industry sources said, as airlines reviewed various contingency plans in an extremely depressed financial environment in which sources of capital have dried up.

US airlines still hold out hope for government aid.

Across the pond

In Europe, the story was much the same.

Deutsche Lufthansa, Germany's largest airline, said it would look to flexible work hours to trim costs. Swiss International Air Lines laid off 169 pilots, the first of 700 previously announced job cuts.

Finnair said it too would open layoff talks as the Iraq crisis worsened already grim market conditions.

To help airlines cope, the Geneva-based International Air Transport Association said more than 100 airlines had agreed to boost some international ticket prices by 2 per cent to 3 per cent.

Australia's Qantas Airways announced a 3 percent staff cut and Singapore Airlines Ltd. said it would cut 8 per cent of its flights.

KLM Royal Dutch Airlines said on Friday it had suspended more flights to the Middle East and reduced a number of connections to other regions after the war in Iraq led to lower demand.

The Dutch flag carrier did not say by how much demand had fallen due to the war, but said it was slashing roundtrip services between Amsterdam and John F Kennedy airport in New York to seven per week from 11.

Partner Northwest airlines will also cut flight frequency on routes between the United States and Europe.

Within Europe, KLM will cut frequency and/or use smaller aircraft to many destinations, it added.

In the Middle East, KLM is suspending all flights to Amman, Beirut, Damascus, Abu Dhabi, Bahrain, Damman, Doha and Kuwait.

The changes will apply until April 13, but the airline will in the meantime continue to adapt its schedule to meet fluctuations in demand, it said in a statement.

(Additional reporting by Jason Neely in London, Jeff Mason in Frankfurt, Meredith Dubner and David Bailey in Chicago, Daisuke Wakabayashi and Emi Emoto in Tokyo)


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