Already pummeled by recession, airlines now must deal with concerns about flu

Airlines are slashing flights and fares to Mexico as swine flu depresses demand for travel to the land of Mayans and Mariachis.

At the same time, President Barack Obama used his weekly radio address Saturday to explain the extraordinary level of precautions the nation is taking for a flu that, thus far, appears in the United States to be no more dangerous than the annual variety.

"This is a new strain of the flu virus, and because we haven't developed an immunity to it, it has more potential to cause us harm," he said. "I would sooner take action now than hesitate and face graver consequences later."

The president said that's why he's asking schools with confirmed cases to close for as long as 14 days and for businesses to allow employees who may be exhibiting symptoms to take as many days off as needed.

"We have asked every American to take the same steps you would take to prevent any other flu: Keep your hands washed; cover your mouth when you cough; stay home from work if you're sick; and keep your children home from school if they're sick," he said.

But there was one thing the President did not do: mention Vice President Joe Biden's gaffe Thursday when he recommended against air travel.

That infuriated the airlines because it contradicted the advice of the Centers for Disease Control and Prevention, which simply suggested Americans avoid "unnecessary travel" to Mexico. The CDC said nothing about regular air travel, which is generally regarded as safe because of sophisticated air filtration systems in modern planes.

But another reason for the airlines' outrage is their current fragile financial state. They can't afford to lose any more revenue, particularly based on unfounded fears.

"We're coming off of the highest fuel prices in history, the collapse of the financial market, and an economy that's in a recession," says David Castelveter, a spokesman for the Air Transport Association which represents the nation's major carriers. "That's why we were so outspoken about what the vice president said: He was just factually incorrect."

Airlines first started cutting capacity (which is the number of flights offered) last summer in response to the record high fuel prices and the economic recession. When fuel prices finally dropped in the fall, there was some hope that 2009 might be a profitable year for some major network carriers most of which have been losing billions of dollars annually almost nonstop since 9/11.

But then the economy just kept getting worse. And now there's the potential for a flu pandemic to knock the airlines economically yet again.

But just as the president and others are trying to calm fears with information, so too are some airline analysts hoping to put the impact of the potential pandemic into an economic context for the airlines. Many note it may not be as dire as it may first appear.

"It will hurt them some in the short term, but I'm not sure about the long-run or how much damage it will do," says Richard Gritta, a transportation economist at the University of Portland in Oregon. "We have to see how this plays out."

Collectively, flights to Mexico make up only about one percent of the airlines' business, according to the ATA's Mr. Castelveter. "So it's not the lion's share of their business, it won't have the same sort of effect you saw with the outbreak of [SARS] when the entire Pacific rim was affected," he says.

For almost two months in 2003, many Asian airlines flew planes that were nearly empty, and domestic carriers that provided service to East Asia, like Northwest, also lost millions of dollars on those routes.

But the situation with Mexico today is different.

Travel to south of the border was already declining this year because of drug-related violence there. And several airlines, which learned the importance of cutting capacity quickly during the 2003 SARS outbreak, were quick to announce reductions this week.

Continental Airlines, which has the most weekly flights at an estimated 450 flights to 29 cities in Mexico, announced it was cutting service by more than 40 percent. United Airlines and US Airways are also reducing their Mexican flights.

"Mexico traffic was already in decline, you had the fear of going down to Cancun and getting shot by a drug cartel, so this is just more of an incremental decline," says Michael Boyd, president of The Boyd Group, an aviation consulting business in Evergreen, Colorado. "So it's really Mexico that's been hurt more than the airlines at this point."

China on Saturday suspended all flights from Mexico to Shanghai after a tourist from Mexico tested positive for swine flu, the state-run Xinhua News Agency reported.