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American Morning

America's New War: What Will Happen to the Airline Industry?

Aired September 17, 2001 - 11:20   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JOHN KING, CNN ANCHOR: One of the dominant subplots today, as we track the markets opening on Wall Street and the economic reaction to last week's tragedies, it's the airline industry. Stocks already falling on Wall Street for the airline industry. Continental Airlines over the weekend announced it would furlough as many as 12 thousand workers because of an expected downturn here in the industry.

Joining me now here in Washington or Patty Davis with word of possible layoffs at America's No. 1 carrier.

PATTY DAVIS, CNN CORRESPONDENT: That's right, John, American Airlines, a source there telling me today that in fact the airline expects to announce as early as midweek layoffs at that airline.

Now, of course, that was the airline that had two of the hijackings, the one that crashed into the Pentagon out of Dulles, and the other one into the World Trade Center.

Now, the source would not give me any numbers at this point in terms of expected layoffs or an exact date for those layoffs. What the source is saying is that it is really contingent upon how bad things are, how bad it is in terms of business rebounding. The source saying, I don't think we will see a lot of people traveling.

Now, as you said, that comes on top of Continental announcing 12 thousand people to be furloughed. The industry in pretty bad shape, and this is evidence of it.

KING: Over the weekend there was an effort in the Congress to pass a bailout package, $2.5 in direct aide, some loan guarantees in the area in $12 to $13 billion. It was held up in the Congress. Airline CEOs trying to do anything about that?

DAVIS: Well, airline CEOs are coming to Washington tomorrow to with meet with Transportation Secretary Norman Mineta to discuss the future of the industry.

One other person at American Airlines had told me last week that they clearly welcomed any kind of bailout that the administration -- that Congress can give to the airlines. They are clearly hurting, as you see stocks today for the airlines way down. So -- and they're not sure exactly, in terms of rebound, in terms of the number of travelers who are going to come back. I was talking to Continental Airlines today, who said that their load factors or the number of people traveling way down. "People are just not showing up," was the quote from spokesperson there. So we have a possible, really, tough time ahead for U.S. airlines.

KING: The theme of the day on Wall Street, from the president himself, is back to work, back to business, but a few miles behind us is Reagan National Airport closed indefinitely. What about the rest of the country? Where are we in terms of getting the airline industry, commercial air traffic, back to normal?

DAVIS: Well, Reagan National Airport appears to be the only airport right now, the only major airport that is still closed, and that's really due to security reasons. And, as you said, that is an indefinite closing.

The FAA saying today that about two thousand flights were in the air, that was as of early morning, they're updating that throughout the day; that's about half of normal. So -- also, good news for commerce in the United States: mail and cargo started moving, again on passenger flights; that was as of yesterday.

So things are starting to creep back to normal. But many airlines have said that they're only going to go back up, ramp up perhaps to 80 percent of their pre-September 11th schedules, when those hijackings occurred. So they know that some bad times are ahead and they're trying to compensate for that.

KING: All right. Patty Davis, thank you very much for joining us here in Washington.

The state of the airline industry also one of the topics of discussion this afternoon when the president meets with his senior economic team at the White House. We'll keep you updated on those deliberations.

And for now, back to Paula Zaun in New York.

PAULA ZAUN, CNN ANCHOR: All right, John, and we're going to follow your lead and talk more about what these plummeting airline stocks, what that impact might ultimately be on the flying public.

Joining me right now is Tom Parsons, who is with the company Bestfares.com. He joins us from Dallas this morning.

Welcome. Good of you to join us, sir.

TOM PARSONS, AIRLINE INDUSTRY ANALYST: Good morning.

ZAUN: So, I don't think any investor can be particularly happy about watching what's happening to these stocks. But you've got folks out there in the flying public scratching their heads this morning saying: What does this mean to me? Can you tell them what it does mean to them?

PARSONS: Actually, what it does means to them is -- it looks like with the airlines actually cutting back 20 percent of their flights, it may mean we can get to the major airports on time in the future, but we're probably going to have stick more on the ground, up to an hour more just to go through security.

I know many of the airlines are letting people make adjustments to their flight schedules, some are offering refunds. And, again, we have to look at how we're going to support these airlines, and, again, I do agree that Congress probably needs to loan some money because aviation is just not fun-in-the-sun-type destinations, it definitely affects all our economy.

ZAUN: But even if Congress comes through with this temporary bailout, when you hear that American Airlines plans to cut jobs and Virgin Atlantic Airways canceled has axed a fifth of it's transatlantic flights, isn't the trend pretty clear that most of these companies are going to be flying less and less flights?

PARSONS: Sure. And, again, they're going to be flying less, but, again, I think it's because the demand was going down in first place before we even had this incident on Tuesday, and this is just going to be the icing on the cake.

I think it is gradually coming back. We are seeing people book again. I mean, last Tuesday, all the people I talked to, they probably saw 90 percent drop in telephone calls. Today, it's probably -- I know in our office it's more like a 20 percent drop, which is good for us, but we offered discounts. Some of these little mom-and- pop shops are probably also going to just disappear because, again, if the phones aren't ringing, people aren't booking flights, these folks are working on nickels and dimes, we could see the industry change very dramatically, even where you buy your airplane tickets today.

ZAUN: Well, let's talk about that. Given volatility of markets and no one sort of understanding where consumer demand will continues to go, you're offering discounts of what percent? And can you really guarantee a customer they're going to get that discount when that flight finally goes off?

PARSONS: Sure. I mean, the airlines -- I mean, we're a discounter, but you've got other airlines out there offering sales today. America West is offering -- this was a sale before hand, they actually have a pretty aggressive sale. Southwest is (UNINTELLIGIBLE) an Internet-only. These airlines are not going anywhere, but they do need -- these are the low-cost carriers in America, which are probably helping us fly, AirTran's, too.

So, again, ...

ZAUN: All right, Tom, I'm just going to cut in here and let you know that the Department of Justice is now in the process of evacuating its workforce. We have no idea what the nature of that threat is, but CNN has confirmed that the Department of Justice is in the process of evacuating some of it's buildings. As we have more details available we will bring them to you.

Let's go back to Tom to get better understanding of what consumers face in this very uncertain airline industry market.

Carry on with your thought about the kinds of discounts the larger shops, like your company, may be able to continue to offer.

PARSONS: Well, again, I think -- today, you don't need to buy an airline ticket. Let's see how the airlines handle it. I think they'll be back to some kind of normalcy probably in the next 24 to 48 hours. I think each of us have to see the skies are friendly, we have to build up our confidence again.

I do believe that the international airlines, if you look what happened with Pan Am 103 back in -- several years ago, we watched traffic to Europe diminish by as much as 30 percent. Well, again, this is probably going to hurt them even more, but, again, the one way that they got us on the airplanes was offering deals and deals. So I still think you have time to sit back and watch deals. I think the airlines are going to be very aggressive. The hotel industries is going to be affected by this, too. The four and five star hotels are probably going to have to end up charging two and three star rates. The cruise lines are also going to get hurt by this, and the car rentals and the amusement parks. The whole travel industry id going to be affected. But I do believe it will come back gradually. We just have to have the better security at the airports. I believe with the part-timers or these turnovers of 400 people a day needs to go bye-bye. I think we need to have true forces of something that's set up by the government to make these airports secure and have educated and also well trained and keep up with the newest techniques at those airports.

ZAUN: Probably find a lot of support on that one, Tom Parsons. Thank you very much for your time. Good luck to you.

PARSONS: Thank you.

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