Airline Industry on its Knees after US Attacks

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 to 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 German Institute for Economic Research (DIW), 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 on Tuesday that the Federal Cartels Office has given the go-ahead to acquire a 49 per cent stake in Eurowings Luftverkehrs 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.

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 conntinuing 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.

Economists have been quoted as saying that consumers need to regain confidence in the global ecenomy and start spending. This does not include spending on air travel, a seemingly big ticket buy. The World Tourist Information Organisation however, anticipates that it is going to take several years for the hospitality and tourism industries to recuperate.