Japan Air, Cathay evaluate war impact

Japan Airlines System Corp, Cathay Pacific Airways Ltd and other Asian carriers say demand is holding up, suggesting passengers view the threat of war in Iraq and terrorism as more distant than US and European travelers.

Japan Airlines, Asia's largest carrier, expects international passenger numbers to rise 7 percent in February, spokesman Geoff Tudor said. Cathay and Singapore Airlines Ltd said reservations in the last two months were about the same as a year earlier.

Those forecasts contrast with Deutsche Lufthansa AG, Air France SA and other European airlines, which are cutting capacity because of slower economic growth and concern a war with Iraq may start as early as this month. Airbus SAS and Boeing Co are relying on Asian demand as orders from the US and Europe drop.

"A larger portion of the network of the European and American carriers is going to be affected," Philip Wickham, an analyst at ING Financial Markets, said. "For Asian carriers, on average between half to three quarters of their flights are intra-Asia."

Asian airline shares fell 1 percent so far this year, according to the Bloomberg Asia Pacific Airlines Index of 17 carriers. European airlines' stock fell 13 percent, and US airlines' stock fell by 18 percent for the same period, according to Bloomberg's indexes.

Japan Airlines expects international passenger numbers to rise 8 percent for the year to March 31, though demand is still below the level before the Sept. 11, 2001 terrorist attacks, which led to the bankruptcy of United Airlines.

"There have been slightly more cancellations of leisure group tours on Japan to Europe routes than usual and some school educational trips have been canceled," Tudor said, adding the overall number of canceled bookings wasn't "significant."

Cathay, which analysts expect this week to report it will return to profit in the six months to Dec. 31, said it is filling the same number of seats as last year.

"People seem to be postponing their decisions to travel until the last minute," Cathay spokeswoman Rosita Ng said. "It's too early to tell what the full impact of war will be if it does break out."

Singapore Airlines, Asia's most profitable airline, also said bookings for its flights were on average similar to last year.

"On forward booking, there's been no discernable change as far as to May," said Innes Willox, a spokesman for the company.

Airbus is scheduled to deliver five A340-500 planes to Singapore Air between November this year and March 2004. Boeing is also to deliver one more 777 jetliner in August.

The carrier will defer plane deliveries only if "demand for travel is expected to decline over a sustained period of time," he said. "Even if we took this step, it would not result in immediate savings. It could also result in a shortage of capacity if demand recovers faster than expected."

Lufthansa will ground 46 planes, 10 more than earlier announced and will also stop hiring new workers, two weeks after KLM Royal Dutch Airlines NV said it will withdraw planes from service.

Air France, Europe's No. 2 airline, will boost seating capacity by 1.8 percent for the six-month summer season, less than its planned increase of as much as 7 percent.

"It's really the uncertainties we are in at the moment that are affecting all of us," Lufthansa's Chairman and Chief Executive Officer Juergen Weber said on Feb. 17. "The reduction of passengers we expect will be within the magnitude of what we experienced in the Gulf crisis in the early 1990s, which was about 20 percent."