Airlines Face Financial Crisis; More Layoffs

N E W   Y O R K, Sept. 17, 2001 -- For the U.S. airlines, a few moments of terror last Tuesday are on the verge of turning into a colossal, unprecedented setback for the entire industry.

Commercial flights have gradually resumed in the days since four airliners were simultaneously hijacked and crashed Tuesday, with two of the planes destroying the World Trade Center in New York and one hitting national defense headquarters at the Pentagon in Arlington, Va. The fourth crashed in rural Pennsylvania.

But the stocks of the major airlines plummeted badly in heavy trading today, and this afternoon US Airways announced it will lay off 11,000 employees and reduce its flight schedule by 23 percent.

"The tragic events of September 11 have had a dramatic effect on the nation's aviation industry, including US Airways," said the carrier's president, Rakesh Gangwal, in a statement issued after the stock market closed. "As a result of reduced passenger demand as well as the ongoing requirements of new security procedures, US Airways has no choice but to reduce the number of its daily flights."

Two smaller carriers also announced cutbacks. America West will eliminate 2,000 jobs and American Trans Air will lay off 1,500 employees.

On Saturday, Continental Airlines announced it was laying off 12,000 employees, while warning it might have to file for bankruptcy in October. And Continental, along with United Airlines and Northwest Airlines, is saying it may reduce its flight schedule by up to 20 percent, in the face of expected weak demand in the future.

Meanwhile, the stocks of major airlines and travel-related companies fell sharply today as Wall Street mirrored the industry's intense concern about the economy in the wake of last week's terrorist attacks.

Among the major carriers, American Airlines fell 39 percent, Continental Airlines dropped 49 percent, Northwest Airlines fell 37 percent, United Airlines dropped 43 percent, and US Airways was hit the hardest, plummeting 52 percent.

Bailout Coming?

The unprecedented situation has members of Congress discussing the terms of a possible financial bailout for the industry, with the bill potentially coming to tens of billions of dollars.

Even before the terrible day on Wall Street, airline industry leaders were calling for government intervention to help the industry make it through the bleak times ahead.

"If you want to have an air transportation system in this country that can get the economic engine running again, you're going to have to do something," said Continental Airlines CEO Gordon Bethune on ABCNEWS' This Week Sunday morning.

"Without aid from the federal government, then we would absolutely have to consider employee reductions," Delta Air Lines CEO Leo Mullin added Sunday, also on This Week.

Transportation Secretary Norman Mineta is scheduled to meet with airline industry leaders Tuesday to discuss the situation.

Logistical Problems and Fear

Reduced demand, more expensive security measures and possible liability lawsuits related to Tuesday's hijackings could all serve to greatly increase the airlines' financial woes.

Already it appears that it will take a long time before the U.S. airlines return to the level of service they had before the attack: 2 million passengers a day on 40,000 domestic flights alone.

"We are looking at an entirely new environment," says Marianne McInerney, executive director of the National Business Travel Association, or NBTA, in Virginia. "We are looking at travel that will take longer, cost more, and create much more frustration."

In McInerney's view, the psychological effects of the terror attacks may have an especially large impact on air passengers: "It will be months before people, when they get on a plane, are not sitting there thinking about the unfortunate events that happened on Tuesday."

An NBTA survey of corporate travel managers taken on Wednesday shows 35 percent recommending that their workers limit travel due to Tuesday's events, with another 36 percent evaluating travel on a case-by-case basis.

Bethune says he would also welcome government control or supervision of airline security measures.

"Certainly we would welcome such an attempt to increase the security and have it uniform throughout the United States," Bethune said Sunday. "Right now it's the responsibility of the airlines and it could be enhanced and I think, you know, broadened."

Mullin added, "I believe most of my colleagues in the industry favor the government taking over all of this." He also said the security "isn't just a cost situation," although such a change might relieve the airlines of some of the financial burden for security.

Lost Money: $1 Billion Per Day?

The financial impact of the horrifying tragedy could come to $10 billion, or up to $1 billion per day, according to the International Air Transport Association, an industry trade group representing 266 airlines.

At least 40 percent of the airlines' normal operating costs continued even with all their planes grounded, including wages for crews and workers, and just about every normal expense other than fuel and landing fees.

The airlines typically keep about 15 days' worth of cash reserves on hand. And while many of them figure to have resumed significant portions of their services during that time, the downtime could significantly eat into that tucked-away cash.

Then there are the potentially expensive settlements which may be paid out to the families of the victims by United Airlines and American Airlines, each of which had two of their planes hijacked on Tuesday.

One regional carrier, North Carolina-based Midway Airlines, has already folded since the attacks. On Wednesday, Midway announced it would close all operations due to the disaster.

"Following the recent terrorist attacks, demand for air transportation is expected to decline sharply," Midway said.

And Mexicana, the second-biggest carrier in Mexico, said the impact of the attacks on the number of its flights to the United States could create severe financial problems as well.'s Peter Dizikes contributed to this report.