War with Iraq would add fuel to airlines' fire = = = = Thursday January 9, 4:40 PM EST = By Kathy Fieweger CHICAGO, Jan 9 (Reuters) - War with Iraq and fears of retaliation would a= dd yet another layer of financial trouble to the U.S. airline industry, w= hich is still reeling from record losses since the Sept. 11 attacks on Ne= w York and Washington. A prolonged conflict would add billions of dollars in red ink to the alre= ady large pool, analysts said, and continued uncertainty about a possible= war would also depress travel demand. "We estimate that a war in Iraq will depress U.S. airline revenue by an a= dditional 6 to 8 percent, with the largest impact in the trans-Atlantic m= arket," said Sam Buttrick, airline analyst at UBS Warburg. "The industry can survive a brief, decisive engagement," he added. "The i= ndustry cannot take a large domestic hit." = Robert Crandall, former head of American Airlines, said the story is pret= ty simple when it comes to war. "It will make people more fearful and it = will make travel more difficult," he told Reuters in an interview. In addition, oil prices would rise further, leading to yet more increases= in costs for airlines when they can ill afford them. Oil, used in jet fu= el production, has been running at near two-year highs in recent weeks. I= t stood at nearly $32 per barrel on Thursday. Two major U.S. airlines, UAL Corp.'s (UAL) United and US Airways Group (U= AWGQ), filed for Chapter 11 bankruptcy protection in 2002 and others coul= d follow if travelers once again fear flying as they did right after the = attacks on the World Trade Center, analysts said. Immediately after the hijacking of four commercial jetliners, travel dema= nd dropped by half and losses in 2001 skyrocketed to about $10 billion pr= etax in 2002. A prolonged attack on Iraq could add billions onto what Buttrick estimate= s will be about $3.5 billion in losses in 2003. That estimate incorporate= s some probability of a two-month military engagement. Longer than that, = analysts said, could cause more massive shortfalls. OPTIONS LIMITED Since the Sept. 11 attacks, airlines have already parked hundreds of jets= , deferred and canceled aircraft orders, cut back drastically on capital = spending and laid off employees. As such, they are running out of ways to= control the financial damage. James Parker, chief executive of Southwest Airlines (LUV), agreed that th= e industry has already done what it can. "The only thing we can do is keep on doing what we've been doing," Parker= told Reuters in an interview. "Keeping our costs low, managing the risks= we take and keeping our cash balance fairly high. It's obviously a very = difficult environment for the industry right now." Parker said on Sept. 11, 2001, Southwest's cash on hand was around $500 m= illion, a historically normal level. Since then, the Dallas-based carrier= has kept nearly four times that in its coffers, lately around $1.7 billi= on, he said. Southwest, with low costs, a streamlined fleet and some of the cheapest a= irfares, has been the only major U.S. airline to make money consistently = since the attacks. Bankers said other airlines have also tried to keep higher levels of cash= on hand, generally double to three times what they would normally have. LIST OF NEW WOES In testimony before the Senate committee on Commerce, Science and Transpo= rtation on Thursday, Northwest Airlines (NWAC) Chief Executive Richard An= derson called the possibility of a war one of the biggest threats facing = the industry. "A war with Iraq would raise fuel costs, lead to a drop in passenger traf= fic and increase security measures at airports and airlines as further se= curity precautions become necessary," Anderson said. "In addition, carriers would have to bear an extra cost for rerouting the= ir flights around air space in the Middle East," he said. "War would dela= y any recovery in the industry that is still under severe strain from the= effects of the terrorist attacks of September 11th." Goldman Sachs analyst Glenn Engel said he sees 2003 pretax losses in the = $4 billion to $5 billion range. "I'm not sure how much worse an Iraq war = makes it," Engel said. "Revenues are still 20 percent below where they we= re two years ago." Donald Carty, chairman and chief executive of AMR Corp.'s (AMR) American = Airlines, told Congress the airlines are working on building an industry = consensus on what steps, if any, the government could take to ease any fi= nancial burden caused by war. He said a number of options have been discu= ssed. Analysts noted an Iraqi conflict could also sap international and domesti= c travel demand and drain pilots and other airline personnel who would be= called to military service or asked to fly troops overseas on commercial= aircraft. Last year, Carty told Congress the industry might ask Congress to roll ba= ck taxes on jet fuel and open the strategic petroleum reserve. At that ti= me, some lawmakers expressed interest in creating a "fuel hedge" to stabi= lize prices for the industry. (Additional reporting by David Bailey in Ch= icago and John Crawley in Washington) = =A92002 Reuters Limited. = Roger EWROPS