Terrorist Threat Cuts Overseas Airline Traffic

THE Gulf war is causing new troubles for an airline industry already buffeted by rough economic times. The fighting has forced airlines to cut back or reroute flights and beef up airport security.

``People are more cautious in terms of flying overseas,'' says David Pizzimenti, airline analyst for Nomura Research Institute America Inc. in New York. Airlines with extensive international routes are particularly vulnerable.

That means tough sledding for financially strapped airlines in the United States, such as Pan American World Airways, which is reorganizing under bankruptcy. Trans World Airlines announced this week it is cutting in half its international flights, because fewer people are flying.

Other airlines are reviewing the situation. On Wednesday, Delta Air Lines discontinued its flights between Cincinnati and Paris.

The fear is not so much the fighting itself - it is terrorism. ``It's worse than any of us anticipated,'' says Pat Gagnon, president of the New England chapter of the American Society of Travel Agents (ASTA). January bookings, especially to Europe, are down at least 25 percent, she adds. Some passengers are even avoiding places in the US, such as Washington, D.C., for fear of terrorist activity.

The US State Department has issued warnings on travel to the Middle East, North Africa, and parts of Asia. Many US companies have heeded the advice, telling executives not to fly overseas unless absolutely necessary.

US carriers have also gone to great lengths to reassure the public. Many airlines have temporarily relaxed their rules so that passengers can return early or cancel flights they had already booked. Airlines are also reminding travel agents that security has been increased at major airports.

Even before the fighting broke out, airlines cut back their Middle East flights as insurance rates on flights soared. Now, carriers have canceled most of those flights and rerouted others around the fighting.

Foreign carriers are also seeing their international business dry up. Since the bombing began Jan. 17, Japan Airlines reportedly received 700 cancellations - 500 for trips to Europe and the US.

The industry's immediate future depends on how long the Gulf war lasts. A short war could help the industry rebound, analysts say, especially if the price of oil continues to fall.

Jet fuel prices, the second largest airline expense after labor, have fallen in recent days. Before Iraq invaded Kuwait Aug. 2, a gallon of jet fuel cost 61 cents. It peaked in October at just under $1.50 a gallon and has traded at under 80 cents in recent days as the US-led campaign against Iraq showed initial success.

If the war is over in a matter of weeks, analysts and travel agents expect business to pick up significantly. ``People are optimistic that things will turn,'' says Ms. Gagnon of ASTA.

A long war, however, could continue to discourage overseas and corporate travel. That could hit the industry very hard, since it is already feeling the effects of a soft international economy.

Recession remains the biggest factor affecting US airlines. They lost a record amount in 1990 - an estimated $1.5 billion - and a prolonged economic downturn would continue the flow of red ink. ``They are all going to have horrendous results no matter what happens to oil,'' says an airline analyst whose company policy does not allow him to speak on the record.

The impact of the downturn will not be uniform, however. Three airlines in particular - Delta, American, and USAir - stand to pick up business from the now-defunct Eastern Airlines. The Miami-based carrier tried to reorganize under bankruptcy last year but ran out of cash last week. Eastern stopped flying last Friday.