The Asian turmoil has triggered a crisis for the industry that is spreading quickly, and as airlines slash Asian services, they are using the extra aircraft to flood routes in the West. BA recently cut flights to South Korea and Sri Lanka in favour of adding capacity in other markets, including a 15 per cent boost on North Atlantic routes this summer. Other airlines will match the move, forcing a price-cutting war.
"The Asian 'flu is more contagious than people want to believe," said Chris Avery, an analyst with Paribas Capital Markets. "Even with the tremendous strength in the West right now, overcapacity in Asia will seep into the rest of the market, bringing everyone down."
Now a growing number of analysts say the Asian crisis will push down profits at Western airlines as soon as this year, spurring another lengthy slump in the notoriously boom-and-bust air transport industry.
Philippine Airlines said on Friday that it will delay nine deliveries of planes from Boeing and Airbus Industries, cut flights and slash its payroll in a bid to cut expenses by 40 per cent.
Qantas Airways, which has already cut Asian flights and seen its shares drop 28 per cent in five months, warned this week that the Asian crisis will hurt its earnings in the second half, after first-half profit rose 9.4 per cent.
For investors, the message is clear: now is the time to sell airline stocks. Avery and other analysts said airlines' profits may have peaked, after a three-year rebound from a disastrous slump that saw them lose $18bn (pounds 10.6bn) between 1990 and 1994.
While profits may still be good this year, "they will inevitably head toward zero as we get into the downturn," said Chris Partridge, aerospace banker with Deutsche Morgan Grenfell.
The gloomy forecasts mark a sudden turnaround from last year, when industry executives and some analysts were speaking of a "golden age" that would prevent a deep slump this time.
International alliances, they said, would keep capacity down as airlines team up on some of the routes and use only one plane instead of two. Deregulation would force airlines to stay
nimble. And, most importantly, many analysts said the industry had learned its lesson after the last slump and had bought planes more wisely.
That doesn't appear to be the case. After ordering too many planes they couldn't pay for after their national currencies tumbled against the dollar, Asian carriers from Garuda Indonesia to Korea's Asiana Airlines have deferred orders.
Boeing publicly maintains that it won't lose orders and expects to delay only about 60 deliveries in the next three years, primarily for the $150m Jumbo jetliners that bring in its best profit margins.
Industry watchers say Boeing privately admits its forecasts are optimistic. "Underneath their cloaks they are already talking about capping and even reducing output," Mr Partridge said.
Avery, the Paribas analyst, was forecasting in 1996 that deliveries of large commercial jets would keep rising steadily until at least 2000. Now he expects the peak to come in 1999, as deliveries surge to 823 before falling to 785 the following year, marking the start of the tailspin.
The manufacturers, for their part, are still clinging to a vision of steadily growing deliveries well past the turn of the century. British Aerospace forecast this week that deliveries by Airbus, in which it holds a stake, will hit 300 planes in 1999 and stay at that level for at least another three years. Airbus delivered 182 planes last year.
"In a difficult situation, you may see the loss of some orders," conceded Mike Turner, the head of BAe's civil aircraft wing. But he added: "I don't see a steep recession this time."
That, analysts and industry executives agree, is the one consolation. The early 1990s slump was accentuated by the Gulf War, which pushed up fuel prices. The slowdown this time may be more like the early 1980s, when total airlines losses were more like $1bn annually.
That is scant comfort for investors in airlines, which typically make a return on sales of only 3 per cent even in the good times, according to International Civil Aviation Organisation figures. Declining profits would also cost jobs at Boeing and Airbus, which typically lay off thousands once orders fall.
"It is undoubtedly true that we are going to see a huge level of jobs go, very reminiscent of the last downturn," Mr Partridge said. "The soft landing is the key - if it can be maintained, then it won't be nearly as disastrous as the early 1990s."
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