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US Airlines Fear Iraq War Will Further Hurt Industry - 2002-09-29

For the past five weeks, trading on Wall Street has declined sharply, a sign that the U.S. economy is slowing down, as it has in many parts of the world. Experts say the uncertainty about an invasion of Iraq is contributing to the stagnation. One industry that has been battered by current events, and could be even harder hit by an Iraqi invasion, is the airline industry.

Since the September 11 terrorist attacks when terrorists hijacked commercial jetliners and slammed them into the World Trade Center and the Pentagon, the U.S. airline industry has suffered an estimated $7 billion in losses. The industry as a whole expects to lose another $7 billion this year, and has laid off 70,000 workers in an effort to cut costs, according to the chief executive of Delta Airlines, Leo Mullin.

He said on the ABC television program This Week, that he thinks a conflict with Iraq would hurt his industry further.

"If you go back to the Gulf War, there was a drop off of about 10 percent or so in international traffic that lasted for about two quarters [of the year]. Domestic traffic went down about five percent," he said. "And there was a very substantial spike in oil prices. It almost doubled for a short period of time."

Mr. Mullin says the U.S. government has indicated it would pick up the costs of additional airport security, but has not yet done so. He says keeping passengers safe in the wake of September 11 is costing the airlines a tremendous amount of money, an estimated $4 billion.

"And since the pre-tax losses of the industry right now would be on the order of $9 billion, between 40 to 50 percent of that loss is accounted for by the increased costs of security for which we are not being reimbursed."

Meanwhile, the price of oil, and its cost to airlines, has risen significantly in recent weeks.

George Soros is an investor and founder of the World Society Institute, which donates money to countries with troubled economies. Also appearing on This Week, Mr. Soros says war with Iraq could cause oil prices to spike, hurting the economy in the short term.

"But other than that, I think a successful invasion of Iraq would lead to lower prices for oil," he said. "And that then would be a stimulus."

Experts say whether an invasion helps or hurts global economies depends upon how long such a conflict goes on. They say a brief conflict could result in much lower oil prices and provide much needed jobs in the defense and related industries. A drawn out conflict, say experts, would continue to drive up oil prices and likely make consumers afraid about the future.