Airlines Face Uncertain Future

When Wall Street’s doors reopened yesterday for the first time since last Tuesday’s terrorist attacks in New York and Washington, major airline stockholders had one word on their mind—sell.

By early afternoon, key industry players including American, Continental, Delta, United and US Airways were all reporting losses of at least 40 percent. By the end of the day, the Dow Jones industrial average had plummeted a record 684.81 points.

The sharp decline in stock value comes during a time of turmoil for the nation’s airline industry, which faces profit losses of up to $1 billion, widespread consumer fear, major staff cuts, and a threat of imminent bankruptcy if a federal aid package is not soon passed by congress.

“The industry today is at risk, and that’s a critical national issue because of the role the airlines play in the overall economy,” said David J. Messing, a spokesperson for Continental Airlines, the country’s fifth largest carrier.

Continental Airlines stock suffered the greatest blow, having fallen $19.59, or 49.2 percent, to $20.77 when the market closed yesterday.

According to Messing, the decline is due to Continental’s recent willingness to speak out about national aviation issues. Last Friday, Continental Airlines Chair and Chief Executive Officer Gordon M. Bethune told the New York Times that the airline industry would go bankrupt by the end of the year without federal aid.

“In a way, we’ve become a lightning rod,” Messing said. “Other people were too shy to talk about it.”

Over the weekend, Continental announced that it would lay off 12,000 empl—21 percent of its workforce.

And other airlines are already following suit. Yesterday, US Airways said it plans to fire 11,000 employees, or 24 percent of its workforce. A company official at American Airlines, the nation’s largest airline, said the carrier will announce layoffs later this week.

“While it’s painful to have to reduce staff,” Messing said, “it’s really neccessary to ensure the long-term vitality of the company.”

Carriers are also scaling back their schedules to avoid bankruptcy. American, Continental, Delta, Northwest, and United have cut their schedules by 20 percent.

“We do not believe that every airline’s survival is guaranteed under any circumstances,” said Jim Higgins, an analyst at Credit Suisse First Boston in New York.

Higgins predicted that the industry will lose at least $5 billion dollars this year.

In response, airlines are trying to “restore integrity to the system that was disabled” by last Tuesday’s terrorist attacks, pressing for support in Washington, and continuing to serve custumors, Messing said.

Airline executives are lobbying for a $20 billion assistance package from the federal government that includes direct aid, low-interest loans, tax relief and a takeover of insurance liability from claims related to the terrorist acts, said John Heimlich, director of economic research for the Air Transport Association.

Transportation Secretary Norman Mineta and Bush economic adviser Larry Lindsey will meet with airline executives today. The meeting comes after President Bush ordered aides to develop a package of proposals to help the airline industry yesterday.

—Staff writer Catherine E. Shoichet can be reached at shoichet@fas.harvard.edu.

—Material from the Associated Press was used in the compilation of this article.