Shutdown in U.S. Adds to Woes of Carriers

The already-battered airline industry braced for more financial damage as the historic shutdown of U.S. air travel and the country’s airports continued through a second day Wednesday.

Airlines are suffering their worst year in a decade because of the economic slowdown and a plunge in business travel.

Now the carriers will be saddled with soaring costs required to implement a broad range of new airport security rules. At the same time, analysts said, flight schedules will shrivel and passenger traffic--now about 1.5 million people a day--will tumble, at least for a while.

Analysts are forecasting an initial dive in both business and leisure travel, owing to anxiety about flying in the aftermath of the terrorist hijackings and crashes of four commercial jetliners.

The industry had hoped to refire its engines by midday Wednesday, and the Federal Aviation Administration did allow some flights that had been diverted Tuesday to go on to their final destinations.

But authorities held off restarting the entire system--probably until this morning--so heightened airport security measures can be put into place. The new rules are expected to dramatically change passengers’ air travel experience for years to come.

“Safety is always of paramount importance, and in these extraordinary times we intend to be vigilant,” Transportation Secretary Norman Y. Mineta said in announcing the delay.

The fear of flying already was evident Wednesday, even though airports remained closed.

“I don’t want to fly anywhere right now,” said Bennett Alvarez of Lake Forest, who showed up at John Wayne Airport in Orange County. He was supposed to fly to Tacoma, Wash., and was seeking more information from America West Airlines about his flight. But the airline’s ticket counter was deserted.

Alvarez signaled that his anxiety will eventually dissipate: “All I want to know is if I can use my ticket at Christmas instead.”

The falloff in traffic--together with revenue from the current shutdown that will be lost forever, high fuel costs and rising labor expenses--means the $2.5-billion loss the U.S. carriers already were expected to incur this year could go much higher, said Ron Kuhlmann, vice president at Roberts, Roach & Associates, an industry consulting firm in Hayward, Calif.

“It would not surprise me if that [loss] goes up by another $1 billion,” he said.

Ray Neidl, an analyst with the investment firm ABN Amro in New York, said the terrorist attack “was so massive and so well-planned that there’s going to be a really steep falloff in travel.” As a result, he said, “it could turn into a record-loss year” for the airlines.

Indeed, the FAA’s unprecedented shutdown of air travel and the airports claimed a casualty Wednesday: Midway Airlines, a regional carrier based in North Carolina that already was operating under a bankruptcy reorganization plan, ceased operations. About 1,700 employees lost their jobs.

The Business Travel Coalition, an advocacy group for business fliers, said its survey of nearly 400 companies found that 88% plan to reduce their employees’ travel in the coming weeks.

The situation is no better in the air freight market, where giant delivery concerns such as United Parcel Service Inc. and FedEx Corp. were forced to keep their airplane fleets grounded Tuesday night.

Those carriers also will suffer major financial hits that will run into the tens of millions of dollars, experts said. Both UPS and FedEx utilize several hundred airplanes to dispatch their goods each night.

All such bearish forecasts for the aviation industry could be quickly evident in the carriers’ stock prices when financial markets reopen either Friday or early next week.

Even when the air-travel system reopens, chaos and confusion are expected. It probably will take days for the airlines to reposition their fleets so they can can resume normal flight schedules. That means limited service in the meantime.

In addition, long delays are expected at major hubs such as Los Angeles International Airport, as passengers deal with the new security rules.

The regulations prohibit curbside check-in, mandate searches of airplanes and airports before passengers are allowed to board and require random identification searches. Long lines and extended delays will be commonplace, experts said.

A gradual buildup of airline service also means the carriers will have to give priority to certain passengers, in terms of who gets to fly on the limited number of initial flights. UAL Corp.’s United Airlines said it had not decided how its priority system will work that it will announce the details--and post them on its Web site--as soon as possible.

The airlines did get one bit of relief, though. Internal Revenue Service Commissioner Charles O. Rossotti waived failure-to-deposit penalties for air transportation taxes that were due Wednesday. Those penalties will be waived if deposits are made by Sept. 26.

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Times staff writers Bonnie Harris and Kathy M. Kristof contributed to this report, and Associated Press was used in compiling it.