Traffic levels on US airlines may not recover to pre-11 September numbers until 2004, while further losses of $2-3 billion are likely this year, warns US Air Transport Association (ATA) chief economist David Swierenga.

Speaking at the Speednews supplier conference in California last week, Swierenga says such losses are feared because higher break-even operating costs, reduced load factors and low yields are slowing the recovery of US airlines. Although traffic growth is returning to early 2001 levels, revenue passenger miles flown are still 10% below pre-September levels.

Cash flow is also a severe worry, says Swierenga. "We are borrowing money like mad to pay operating costs to sustain ourselves through the trough. That's an industry in trouble, and it will be a while before we get out of it," he says. Airlines already had higher debt to equity rates than other US industries, and are now more heavily leveraged - around 63% compared to around 50% in 1999.

Problems include high labour costs, rising jet fuel prices, and growing maintenance and materials expense. Despite layoffs of 80,300 across the ATA members - 14% of total workforce - Swierenga says average labour costs per employee are expected to rise to a record $76,100 in 2002 compared with $68,700 in 2000. Only arbitration-type salary negotiations will "get us away from the blackmail that US airlines face from labour groups", he says.

Source: Flight International