World Airlines

Many of the world's airlines are flying blind and broke into their biggest ever crisis.

"There was total panic in the airline industry at the highest level last week,"says one industrial source.No wonder,no industry has ever faced such a sudden crisis,or such an uncertain outlook.Since all American flights were grounded after the disaster of September 11th,the airlines have bled about $650m.The immense losses are continuing,because the airlines are now flying,but half empty.When flights resumed this week,bookings were about 70% down in America.To save themselves,the airlines are frantically cutting jobs:on September 19th,United and American Airlines each announced cuts of 20,000 jobs.

On September 18th the industry held talks with the administration about a package of cash,loan guarantees and tax cuts,worth a total of $24 billion.As The Economistwent to press,the airlines were being offered $5 billon in cash,$3 billion to pay for extra security and an agreement by the government to take on their huge potential legal liability.However,requests for loan guarantees of more than $11 billion were on hold,and it was still unclear whether some airlines would be filling for bankruptcy within days. Airlines cannot cope with a sharp fall in revenues:they are capital-intensive and need to maintai a network,which means high fixed costs.Aircraft cost up to $200m each and an airline must fill 3/4 of its seats to make any money:even a fall of 5% points in traffic can wreck operating economics.So a short term fall of more than 2/3 is crippling,even if it is reversed later in the year.

However,even before the terrorist attacks,travel was falling.America's airlines were forecasting losses approaching $3 billion this year(the death toll of passengers would have been far higher had the four aircrafts not been half empty.)Now,the loss figure is expected to top $5 billion.For losses worldwide,IATA,the airlines' trade association,hazarded a figure of $10 billion.But,this implies that the non American half of air travel will be as badly affected as the American,and that will not be the case:Eurape will be hurt,Asia may suffer less.