Air travel will suffer

September 13, 2001: 8:14 p.m. ET

Three days of lost sales and fear of flying to hurt travel-related business
By Peter Valdes-Dapena

NEW YORK (CNNfn) - Airplanes are starting to fly again, but the bizarre and frightening images on Tuesday are surely burned into the minds of most Americans. How many will never again feel secure flying? And, if people are afraid to fly, the outlook for airlines and other travel-related industries could suffer.

UBS Warburg estimates that the airline industry will take a $2.1 billion hit because of the terrorist attack, contributing to $4.4 billion in losses this year -- the largest annual loss in history for the industry. "Not all airlines will make it outside of bankruptcy protection," according to analyst Samuel Buttrick, who said in a Reuters report that there also will be an impact in 2002. Buttrick forecasts a $400 million loss for the industry next year.

The impact will not be felt only by domestic carriers. The International Air Transport Association says that this week alone international airlines face $10 billion in revenue losses and extra costs.

Standard & Poor's on Thursday placed the credit ratings of all U.S. airlines on "Creditwatch with negative implications," meaning that it is placing the financial health of the industry under "special surveillance." Air Canada and British Airways were also placed on Creditwatch with negative implications because of their substantial dependence on flights to and from the United States.

One airline has already called it quits. Midway Airlines had filed for Chapter 11 bankruptcy on Aug. 13, and Wednesday said it would give up on efforts to restructure.

Vacancies?
Other industries will likely feel the pinch. Hotels may be left with more empty rooms, and destinations may have fewer paying visitors. "The fact is, in the short term, there's going to be a pretty significant impact on travel generally," Marc Grossman, a spokesperson for Hilton Hotels Corp (HLT: Research, Estimates), said in a Reuters report Wednesday. "We have seen a severe drop-off in reservations over the next few days."

Hotel operators were already suffering from the general slow-down in the economy. Marriott International Inc. recently surprised investors when it said it would report that its revenues per available room -- or revpar -- are expected to be down by 7 to 10 percent in the third quarter. Some analysts had been holding out hope that September, generally a good month for travel, would lift the industry out of its recent doldrums. If travelers cut back, it may not.

"It's reasonable to use history as your beacon for the future," said Harry Curtis a hotel analyst with Robertson Stephens. During the Gulf War in late 1990 and early 1991, demand dropped by 300 to 500 basis points, he said. Curtis points out, however, that these companies have good cash flow and strong balance sheets, so their viability is in no real danger.

On the Toronto stock market Thursday, shares in North American hotel and resort firms were hammered. Shares in Fairmont Hotels & Resorts Inc. dropped 22 percent while Four Seasons Hotels Inc. (FS: unchanged at $46.92, Research, Estimates) , which has more than 30 luxury hotels worldwide, including at least two in Manhattan, fell 6 percent.

Elliott Bloom, a Cendant (CD: unchanged at $17.76, Research, Estimates) spokesperson, said it was still far too early to say what the long-term effects would be. Cendant operates the rental-car company Avis as well as Days Inn and Super 8 hotels. In the short term, car rental companies, including Avis and Ford's (F: unchanged at $19.40, Research, Estimates) Hertz, have seen a large increase in one-way car rentals because of disruptions to air travel. Both have been waiving one-way and drop-off fees to those customers.

Joseph West, dean of the School Hospitality Management at Miami's Florida International University, feels that may well be a slump in tourism for Florida and other states that rely heavily on tourist revenue. "There will be an initial negative impact on tourism based on the fear of flying as well as on people's fear of being in what they could call a target area," he said.

Like airlines, theme parks and other tourist destinations might also need to spend some extra money on security measures. Particularly important would be highly visible measures, such as armed guards, that might help customers feel more at ease, West said.

Disney theme parks have added additional security, including searches of visitors' bags. The parks have, since reopening on Wednesday, seen roughly the usual number of visitors for this time of year, said John Dreyer, a Walt Disney Company (DIS: unchanged at $23.58, Research, Estimates) spokesperson.

Another tourism expert, Stephen Holland, associate director of the University of Florida's Center for Tourism Research and Development, feels that Florida's tourism might not suffer all that much. "People take their leisure time pretty seriously in this country," he said. Those who are afraid to fly may simply take ground transportation rather than canceling a planned vacation.