The Air Transport Association, which represents major airlines, said in a report on airline finances that its members would take aggressive steps to counter any sharp drop in travel demand and an increase in costs caused by an Iraqi war.

Big airlines are seeking government assistance to stem rising fuel costs and ease taxes that are contributing to losses that soared to more than US$10 billion in 2002.

The industry outlined a "most likely" scenario if war broke out, saying reduced demand and higher costs due to a conflict lasting 90 days would cost it US$4 billion in lost revenue. Without a conflict, losses would still be expected to reach almost US$7 billion for the year.

"The nation's air carriers will continue to do all we can, but we fear that the consequences of this war will be severe," James May, president and chief executive of the air transport group, told a news conference.

May restated the industry's belief that war could prompt more bankruptcies or force some financially fragile carriers into liquidation. Recovery would take several years and ticket prices would have to fall further to spur demand.

US Airways Group Inc. and UAL Corp.'s United Airlines are in Chapter 11 bankruptcy protection, and some industry experts believe that AMR Corp.'s American Airlines, the world's biggest carrier, could follow later this year.

Airlines expect overall traffic volume during a second Gulf conflict would fall more sharply than it did during the 1991 war, when it declined 8 percent after fighting began.

The airlines based their assessment on a slide of more than 20 percent in advance bookings for overseas travel after the US government elevated its domestic terror alert status from yellow to orange in early February.

Jet fuel has more than doubled in price from a year ago to US$1.30 a gallon recently. Fuel is the second-largest expense after labor for an airline. An increase of one penny a gallon costs the industry an estimated US$180 million annually.

(China Daily March 12, 2003)