Just when Asia-Pacific airlines thought they would weather the fallout from the Iraq war in relative health, the Severe Acute Respiratory Syndrome (SARS) virus has given them a serious dose of reality.

Across Asia carriers are suffering terribly and many are slashing capacity at levels not seen before. As many would-be travellers opt to stay home for fear of catching the mysterious flu-like illness, economies have all but ground to a halt in affected areas such as Hong Kong. Travel and tourism has been by far the worst affected sector.

In Hong Kong Cathay Pacific Airways has slashed April and May services by 37% and Dragonair by nearly half, while Hong Kong International Airport has been reporting daily flight cancellations by many other international carriers that are as severe as one third.

Airlines are suffering across the region (see box), while carriers operating from Europe and North America to the Far East have also taken action in the wake of falling loads. Air France, on the other hand is confident traffic will return fairly quickly and has not cut back on any services to the region.

Northwest Airlines, with its strong transpacific hub in Japan, is another that has not altered its Far East flight programme. Overall, for the week ending 6 April, the US Air Transport Association said transpacific traffic for its members fell by 25.8% compared with the same week in 2002.

Also known as atypical pneumonia, the virus had been blamed for more than 150 deaths around the world and for making thousands more ill. Although it is not restricted to Asia, with cases being reported in countries such as Canada, the virus is believed to have originated in southern China in November. It then spread to Hong Kong, Vietnam, Singapore, Taiwan and elsewhere.

Before war broke out in Iraq, Asian carriers were generally confident that they would survive the negative effects of the Middle East conflict relatively unscathed. After the 11 September 2001 terrorist attacks in the USA, most major operators managed to remain profitable as passenger traffic held quite firm within the region and cargo traffic surged. The anticipated continued strength of intra-Asian bookings was widely seen as the saving grace that would keep airlines well in the black this year.

But all that changed overnight and both analysts and airline finance departments are tearing up earnings forecasts. Cathay chief executive David Turnbull warned in a letter to employees in early April that the airline was facing its worst crisis in decades. "Sadly, Cathay Pacific has now entered its most dangerous time in terms of its commercial future in the 26 years that I have been involved with the company," he wrote. "Over the last six years we have weathered many storms, but the combination of atypical pneumonia and war in the Middle East has annihilated our passenger bookings." Turnbull added. "We are presently planning to cut a quarter of our services…but I suspect that this will rise to around a third."

By early in April the double whammy effects of war and SARS had brought Cathay's systemwide load factor down to 30-35%. Singapore Airlines, which like Cathay carries a significant amount of transit traffic through its home hub, was reportedly seeing load factors in the low- to mid-40% range.

"The Iraq war dampened demand on transpacific and also to Europe but we could live with that," says Japan Airlines. But then along came SARS and overnight, reservations plunged again.

The impact of SARS has even spurred the normally low-profile Association of Asia Pacific Airlines (AAPA) to demand action from infrastructure providers, mirroring a call made by counterpart IATA on a global level. "Airports and air traffic management services can and must reduce their charges, rents and other burdens which they impose on the airlines regardless of the fluctuations of the market," states AAPA director general Richard Stirland.

The hassle factor is also keeping many people from travelling. Airports are now screening arriving passengers and some are putting those suspected of having SARS into forced quarantine. Thailand, for example, has taken dramatic measures, requiring visitors arriving from affected areas to go through strict screening on arrival and forcing them to wear surgical masks when in the country. Malaysia has also imposed stringent visa restrictions on nationals from affected areas, such as Hong Kong, China, Vietnam and Canada.

And while the situation will no doubt stabilise at some point, say observers, even after the SARS outbreak is under control it will probably take many months before people have confidence to travel again.

"Tourism confidence in Hong Kong has been shattered and it will take some time to rebuild after things have settled down," warned Turnbull in his ominous message to employees.

Reaction to SARS

Asia-Pacific carriers

Cathay Pacific Issues profits warning as traffic slumps by a third. Cutting services by 37% for April and May, and dropping Malaysia services altogether

Dragonair Cuts service by 48% during April.

Japan Airlines Cutting traffic systemwide by 12% in April and 17% in May

Korean Airlines Suspends 15 services

Singapore Airlines Defers plan to order new aircraft. Cuts capacity by 20%

Thai International Suspends until 30 June four international routes, reduces frequencies on others

Other major carriers

British Airways Drops one of its daily Hong Kong services. The other operates via Bangkok so that cabin crew do not have to overnight in Hong Kong

Continental Airlines Suspends until 2 June its five flights per week to Hong Kong from New York

Lufthansa Cancels service on certain days from Munich to Hong Kong, Shanghai and Tokyo

United Airlines Reduces frequencies on flights to Tokyo and Taipei

Source: Airline Business