Storm warnings for Asia's airlines

Asian airlines are expected to struggle as passenger numbers fall further

By CNN's Grant Holloway

HONG KONG, China (CNN) -- Asian and Pacific airlines are expected to lay off staff and cut back services as business slumps in the wake of last week's terror attacks in the U.S.

Many Asian airlines have already endured a very poor six months and the latest downturn could see them forced to dramatically restructure their operations.

Following hard on the heels of U.S. airline Continental laying off thousands of staff at the weekend, British-based Virgin Atlantic said Tuesday it would let 1,200 employees go and slash its trans-Atlantic flights by one fifth.

Virgin Atlantic is 49 percent owned by Singapore Airlines.

And a public share offer by Thai Airways International planned for November is likely to be delayed as a consequence of the airline industry turmoil.

"The current situation and sentiment is not good for Thai Airways' share offer," Thai Prime Minister Thaksin Shinawatra told reporters Tuesday.

"We need to wait for everything to be very clear."

The Thai government owns about 93 percent of Thai Airways but wants to reduce this to 70 percent.

About 60 percent of Thai Air's revenue comes from tourists from Europe and the United States.

In the first nine months of its 2000/2001 financial year, the airline posted a net loss of $4.37 million (194 million baht).

While major regional airlines such as Qantas, Singapore Airlines and Cathay Pacific are expected to ride out the storm, smaller carriers which rely heavily on U.S. routes could forced to dramatically restructure their operations, analysts told CNN.

"Most airlines would be looking to lay people off anyway," managing director of the Center for Asia Pacific Aviation Peter Harbison said.

"Anyone with significant operations to the U.S. will need to cut back services in the short term," he said.

Airlines such as Japan's Air Nippon, Korean Air and Philippines Airlines (PAL) would be particularly hard hit.

Korean Air has estimated losses from the flight disruptions at $14.64 million (19 billion won) between Tuesday and Friday last week.

Some could benefit

Many U.S. holiday makers are canceling their travel plans

PAL vice president of corporate communications, Rolando Estabillo, said the airline was hopeful it could survive the latest downturn but business promised to be especially hard over the next few months.

PAL has 20 flights a week to the U.S. and was one of the first airlines to resume flights there after the terror attacks.

Cathay Pacific manager of corporate relations, Lisa Wong, told CNN the airline had "no plans right now" to reduce staff or services but the airline would "continue to monitor" its operation environment.

"The second half [of the financial year] will be very tough for us," she said.

In the medium term, stronger airlines such as Qantas could benefit from the current industry woes as weaker competitor airlines are forced to pull out of U.S. routes, Harbison said.

For example, Air New Zealand could well be forced to reduce its flights to the U.S. and American carrier United Airlines might also reduce or abandon its flights between Australia and the U.S.

Holidays canceled

United said Tuesday it would immediately halt Hong Kong to New Delhi flights that had been scheduled to stop anyway on October 26.

United said its plans to start up Chicago to New Delhi services "will also now not be implemented".

All Asia Pacific airlines are expecting a big drop in numbers, particularly from American tourists reluctant to fly.

Australian Tourist Commission boss Ken Boundy said reports from the industry showed U.S. consumers are already canceling holiday bookings to Australia and other destinations.

And Japan's largest tour agency, Japan Travel Bureau, said 9,500 people had already called off trips to the U.S. and Canada, causing the company to lose $13 million.