Airline Stocks Drop 30% or More
Airline stocks plunged 30% or more Monday as the industry’s financial crisis widened, and two more major carriers--US Airways and America West--announced permanent retrenchments by slashing their flight schedules 20% and cutting 13,000 people.
Both events reflect the sudden cash crunch the airlines face after last week’s terrorist attacks and the historic two-day shutdown of U.S. airspace. As the airlines looked for ways to recover, analysts debated whether one or more would be forced into bankruptcy without a federal bailout.
The airlines and many analysts continued pleading with the White House and Congress to help the industry immediately or risk enormous damage to the U.S. economy.
President Bush met with his economic advisors for more than an hour Monday to discuss how Washington can help the damaged airline industry. Some members of Congress also are trying to move legislation quickly to aid the nation’s carriers, but Congress is in recess until Thursday.
“The president expressed his concern about the financial condition of the airline industry as a result of the terrorist actions,” White House spokeswoman Claire Buchan said. “He directed his staff to develop a specific set of proposals to help the industry emerge from its difficulties.”
Bush and other top administration officials so far have avoided embracing any of the multibillion-dollar airline aid proposals being floated on Capitol Hill. Airline executives are expected to meet today with White House economic advisor Lawrence B. Lindsey and Transportation Secretary Norman Y. Mineta to discuss the issue.
House and Senate leaders likewise hope to meet with airline executives today to work on details of a $15-billion aid package, and the proposal could reach the House and Senate floors by the end of the week.
“There really seems to be no disagreement that something needs to be done,” said a Senate Democratic leadership aide.
A proposal to provide $2.5 billion in direct aid and $12.5 billion in loan guarantees ran into trouble in the House on Friday when some lawmakers objected that it was being rushed. But the delay appears to be benefiting the industry.
“Don’t be surprised if the package becomes larger,” said a House Democratic leadership aide. Airline lobbyists reportedly told lawmakers Monday they need $20 billion to $24 billion. Officials of the Air Transport Assn., the industry’s trade group, did not return calls.
If one or more carriers fail, “then we will have provided the terrorists with the satisfaction of devastating our economy,” said Kevin Mitchell, chairman of the Business Travel Coalition, an advocacy group for business fliers.
He warned that the major airlines--most of which have announced permanent 20% cuts in flight operations--could ultimately shed 125,000 workers. US Airways laid off 11,000 workers Monday, and America West cut about 2,000. And without quick U.S. aid, Mitchell estimated that an additional half-million jobs in related industries, such as tourism and hotels, could be lost.
Investors sensed that prospect Monday and sold off stocks of travel-related services companies such as reservations giant Sabre Holdings Corp. and its majority-owned online division, Travelocity.com. Shares of hotel, casino and cruise companies also fell, and the leisure group as a whole skidded more than 25%, said Bear Stearns & Co. analyst Jason Ader.
It’s estimated that the airline industry, which operates on thin profit margins even in good times, already has lost $1 billion since the terrorist attacks, and total losses for the year are pegged as high as $7 billion. That would easily make 2001 the worst year in history for U.S. carriers.
The airlines are in a financial vise. Together they have more than $340 million in daily fixed costs--bills that must be paid no matter what--but they’re flying half-empty planes as the industry tries to rebound from last week’s shutdown and as passengers grapple with anxiety about flying.
The airlines’ costs also are climbing because of the new federal security rules, which are reducing the number of jetliners that the carriers can get into the air each day.
The airlines “will have a declining customer base because of the fear factor, rising costs of security and potentially rising costs of fuel,” said portfolio manager Jim Wineland of Waddell & Reed, a money management firm that, as of June, had 715,000 shares of American Airlines parent AMR Corp.
The American Stock Exchange’s index of major airline stocks plunged 41.12 points, or 40.3%, to 69.85 on Monday. Among individual stocks, AMR fell $11.70 , to $18 a share, and United Airlines parent UAL Crop. dropped $13.32 to $17.50. The companies each lost two planes in the attacks.
Delta Air Lines tumbled $16.61 to $20.64 a share; Continental fell $19.59 to $20.05; Northwest lost $7.20 to $12.42; and US Airways--considered among the weakest of the major airlines--lost more than half its value, falling $6.05 to $5.57.
Continental, which is furloughing 12,000 workers as a result of trimming its flight schedule, said it wouldn’t make $70 million in payments now due on certain securities used to finance aircraft purchases. Gordon Bethune, the airline’s chief executive, has warned that the carrier would face bankruptcy next month unless Congress acts.
“The industry will be bankrupt by the end of the month,” warned analyst Helane Becker of Buckingham Research.
But others said that for all its losses, the industry is stronger than a decade ago, when it was hurt by the ripple effects of the Persian Gulf War.
“We believe that generally, the airlines’ liquidity and balance sheets are stronger and that no companies are in immediate danger of bankruptcy,” Raymond Neidl of investment firm ABN Amro said in a bulletin to clients.
Some union leaders privately wondered whether the airlines’ cutbacks aren’t intended to pressure Congress for aid. But there was consensus that union members will feel the pain of the growing crisis.
“The solvency of the entire industry is at stake,” said Bret Caldwell, spokesman for the International Brotherhood of Teamsters, which represents about 100,000 airline and airport workers, from baggage handlers to pilots.
Patricia Friend, president of the Assn. of Flight Attendants, with 50,000 members at 26 airlines, said that carriers have been cooperative, but that she expects demands for worker concessions to soon follow.
“Clearly they are going to use the financial impact of this event to try to get relief from their employees,” she said. “We’re skeptical. Our long-term interest is obviously job security, but this is not an industry that can be rebuilt on the backs of the workers.”
Some lawmakers also want to move cautiously. “The airlines told us they were going broke long before these attacks occurred, while at the same time giving their executives $120 million in salaries and bonuses,” Sen. Ernest F. Hollings (D-S.C.), chairman of the Senate Commerce, Science and Transportation Committee, said in a statement Saturday.
But Sen. John McCain (R-Ariz.), the top Republican on the committee, said, “We don’t need any further evidence to know that the airline industry is in dire trouble. If we don’t act soon, I’m afraid that it will be even more difficult to resuscitate this key industry in the future.”
For now, advertising experts were hard-pressed to say when the airlines might start advertising again to stimulate traffic. And when the airlines do return, the ads won’t point to comfortable seats and frequent flights, they said.
“Necessity will be driving ticket purchases for a while, not advertising,” said Stuart Fischoff, a professor of media psychology at Cal State Los Angeles. “It’s almost out of the airlines’ hands right now.”
And some investors are betting that the government will step in. Marc Cohodes, a San Francisco investor who more commonly bets that stock prices will fall by shorting them, said he bought AMR shares Monday.
“The country has been through a lot,” Cohodes said. “But to say there’s not going to be an airline industry? That’s over the top.”
*
Joseph Menn reported from New York, and Richard Simon from Washington. Staff writers James F. Peltz, Peter G. Gosselin, Nancy Cleeland and Greg Johnson contributed to this report.
