Airline collapses amid $10bn industry losses

Aviation

Australia's second biggest airline, Ansett, has collapsed, sparking fears that more carriers may fail because of a slowdown in air travel.

Although Ansett had been on the edge of bankruptcy for some time, aviation analysts believe Tuesday's assaults on New York and the Pentagon using hijacked passenger airliners pushed it over the edge. One said: "Ansett has been a basket case for months but this week's events finished it off."

Air New Zealand, Ansett's owner, put the carrier into voluntary administration on Wednesday, writing off its $1.4bn investment in the airline.

Yesterday, the administrators grounded the airline altogether, putting 60,000 jobs at risk and leaving thousands of passengers stranded, after deciding it had insufficient cash and credit facilities to continue flying.

Martin Foley, president of the Australian Services Union, said: "Mass confusion is reigning. The civil aviation industry is in meltdown."

Although Ansett may have collapsed without this week's horrific events – Air New Zealand had been searching for a buyer for some time – the pall cast over the aviation market means it may not be the last airline to go under.

In the United States, analysts fear domestic air travel could fall by 50 per cent while the decline in the transatlantic market could be even greater than it was after the Gulf War a decade ago. Passenger levels fell by 25 per cent in 1991 and took nearly a year to recover.

Chris Tarry, an analyst with the London-based investment bank Commerzbank, said the suicide attacks on America represented "a cataclysmic event for the world's airlines".

The International Air Transport Association estimates that $10bn of revenues have been lost this week and forecasts of losses for the industry worldwide this year are now put at $4.5bn. In 1991, the year of the Gulf War, the industry lost $7.5bn, but that was because the conflict began in January and the effects were felt for almost the entire 12 months.

The widely expected downturn in air travel threatens to leave the airlines trapped in a vicious spiral of rising costs and plummeting revenues. The Gulf War damaged passenger confidence in flying and also tipped the world into recession, depressing air traffic further.

This time, analysts believe that discretionary or leisure traffic may fall spectacularly as people who do not need to fly either stay at home or use other means of transport. Mr Tarry said: "Who is going to want to fly to New York for the weekend to shop when they can take the train to London or Paris?"

Business travel, too, could be badly affected as companies decide not to take the risk of putting their executives in the air if they can communicate just as well by teleconference or e-mail.

The other big difference this time is that the aviation industry faces a colossal bill for security improvements at the same time as its revenues are tumbling.

Turning cockpits into impregnable capsules within the cabin would be hugely expensive, as would stepping up passenger and baggage screening at airports with sophisticated technology such as hand-print identification of passengers.

But aviation experts believe the biggest financial damage will be done by longer check-in times, which will in turn disrupt flight schedules and cause chaos at peak times. "The entire economics of the airline industry are going to change," Mr Tarry said.

Someone will have to pay but airlines can only raise ticket prices so far before driving passengers away. Phil Butterworth-Hayes, civil aviation editor of Jane's Information Group, says: "Lockerbie had a dramatic effect on aviation with Pan Am going out of business but this is the blackest day aviation has ever had.

"Airlines could go out of business and a lot of unused aircraft will be parked in the desert."