European Airlines Making Emergency Cuts
FRANKFURT, Germany (AP) _ Europe’s airlines are reducing service to the Middle East and flight schedules overall in an attempt to weather a drop in passengers due to war in Iraq. Even so, industry observers say the big European carriers generally are in better shape to face the fallout than their U.S. counterparts.
A plunge in passengers after the Sept. 11 attacks and the slack global economy have already made European airlines leaner than they were going into the first Gulf War 12 years ago: Payrolls have been cut, planes idled and cash reserves increased in recent months.
While Lufthansa, British Airways and Air France have aggressively streamlined, U.S. airlines are still struggling to wring excess costs and capacity out of their system.
``The airlines have known this was likely to happen for quite a while,″ said Dominic Edridge, an analyst at Commerzbank in London. ``The European airlines at least have got their cost bases in order, so that they’ve been making money while they’ve been able to in the past 12 months.″
That can’t eliminate huge uncertainty about how long war may last, and how business and vacation travelers will respond _ especially on key routes to North America. But airline balance sheets reflect an 18-month struggle to cope with weaker demand, particularly a drop in the lucrative business-class travelers who fatten airline profits in good times.
The European airlines’ preparedness is a contrast to their problems after the surprise 1990 invasion of Kuwait by Iraq, which led to the 1991 Gulf War.
Lufthansa, which reported a profit of 717 million euros ($760 million) for last year, cut employee costs right after Sept. 11, piled up over 2 billion euros in cash and idled 31 planes this year.
British Airways has more than 1.8 billion pounds ($2.8 billion) in cash on its balance sheet, Air France more than 1 billion ($1.05 billion) and KLM some 800 million euros ($840 million).
That’s important because airlines, with high fixed costs, can quickly burn up their available cash during a downturn.
British Airways, most vulnerable to a trans-Atlantic slowdown because it gets roughly a third of revenue from those routes, has trimmed seat capacity by four percent for April and May. That comes after BA said it had cut 1 billion pounds ($1.6 billion) in overhead over the previous year. It earned 13 million pounds ($21 million) for the last three months of 2002.
Air France has trimmed its summer schedule, idled planes and increased ticket prices to cover higher fuel costs.
``Without question, the Americans are in a much worse position on the whole,″ said aviation analyst Nick van den Brul at BN Paribas. ``Traffic has really fallen off after 9-11 and they haven’t cut costs fast enough and they haven’t cut capacity fast enough.″
The reason, analysts say, include the $5 billion government bailout plus $10 billion in loan guarantees the airlines got after the attacks. That, and the chance to restructure under U.S. bankruptcy law while they keep flying, have proved a disincentive to slash costs and give up marginal routes.
Strong unions also mean higher labor costs for U.S. airlines.
The European Union, in contrast, blocked Belgium from rescuing its Sabena airline, though EU officials are now discussing easing competition rules barring government airline aid due to the Iraq war.
European airlines are also expressing concern about the impact on customers of U.S. data requirements imposed as part of the war on terrorism. Airlines must turn over personal information such as meal preferences which can reveal religious or ethnic affiliation.
Airlines have complained to European Union officials, saying they are put in the position of either violating U.S. rules or EU rules on privacy protection.
BA and Lufthansa are among those telling their passengers of the data requirement. While the impact is hard to gauge precisely, some travelers are clearly annoyed, Lufthansa spokesman Thomas Jachnow said.
``We have some irritation on the customer side, and a lot of questions to answer,″ Jachnow said.