Warning: 30 airlines will go bust this year

Up to 30 more airlines will go bankrupt before Christmas, the chief executive of British Airways warned yesterday, as the biggest rescue of stranded passengers in travel industry history began.

Willie Walsh said the scenes of chaos in which 85,000 passengers have been stranded at locations around the world after the collapse of XL, Britain's third largest holiday company, would become a familiar sight as the travel industry struggled with soaring fuel costs and the effects of a global economic downturn.

"We are in the worst trading environment the industry has ever seen", said Mr Walsh. "We have already seen 30 or so airlines go bust this year and it would be fair to expect a similar number of casualties worldwide over the next three to four months."

Mr Walsh also announced up to 1,400 redundancies at his own airline yesterday.

Travel industry experts said smaller airlines and tour operators were most at risk and warned passengers to book in a way that ensured they got their money back if an airline went bankrupt.

Joseph Thomas, a travel and leisure analyst at Investec, the City stockbroker, said: "XL will not be the last: there have been a number of similar issues recently of smaller tour operators hitting financial difficulties."

John Strickland, an aviation consultant with JLS Consulting, added: "There are carriers in the UK that are not cash-rich like BA or Ryanair and who have not been able to hedge their oil costs. I think there will be other failures in coming months."

The travel sector is particularly vulnerable at this time of year because operators have to begin paying suppliers, such as hoteliers just as the number of bookings begins to dwindle.

This year, however, is especially difficult because the UK's economic slowdown has begun to damage sales. At the same time, the costs of airlines and other travel companies remain high, primarily because of the hugely inflated price of jet fuel, which has doubled in a year.

Britain's biggest tour operators, TUI Travel and Thomas Cook, have already announced they are cutting by about 8 per cent the number of holidays on offer next summer to avoid being caught out by falling demand. Most leading airlines, including national carriers such as BA and budget airlines such as Ryanair, have also announced reductions in capacity, particularly during the winter months. But smaller players may have insufficient resources to survive. XL is understood to have had large borrowings, which left it especially vulnerable to a rise in costs.

Kenny Ezard, of Airline Business magazine, said she was sure other airlines would go bust, following Zoom, Silverjet and XL. "It's an ever-growing list," she said. "It will be the ones that don't have strong balance sheets, probably the start-ups. There will also be a lot more consolidation, which is already happening in Europe."

Some bookmakers are now taking bets on which airline or tour operator will be the next to go bankrupt, though transport analysts are reluctant publicly to name those considered most vulnerable for fear of sparking a panic that would seal their fate.

Gert Zonneveld, a transport analystm, said: "Companies that have gone under in the UK have tended to be younger, smaller companies; the larger companies have a lot more cash and are well established and it takes a long time to achieve that."

Alitalia, the Italian national airline, could be the next high-profile victim of the downturn, having been given one more day by the Italian government yesterday to come to an agreement with trades unions. Ministers said that if the unions did not sign up to a rescue plan for the ailing airline its assets would be liquidated.

British Airways said its programme of redundancies, which are – for now – voluntary rather than compulsory, was the final stage of a restructuring plan launched in 2005. A spokesman for BA said it had intended to complete the restructuring by next March but was now bringing forward the final phase.

Staff have been told that anyone who applies for redundancy will be offered a severance package, though the airline has not set a formal target for the number of people it wants to shed.

"The airline industry faces exceptionally difficult circumstances," BA's spokesman said. "We'll see what response we get from these managers."

The airline has already unveiled a series of measures designed to counter a crippling rise in its jet fuel bills, which are expected to total £3bn this year, 50 per cent more than in 2007.

Last month, it revealed profits during the first three months of the year were 88 per cent lower than in the same period last year and warned price increases and cuts to capacity were inevitable.

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