Airline industry takes hit from Gustav


ATLANTA–By disrupting travel to and from the Gulf Coast, Hurricane Gustav denied the airline industry some critical revenue over the Labor Day holiday weekend.

Gustav was also expected to nick tourism, insurers and utilities. Although quantifying losses in these sectors — and the region’s energy infrastructure — will be difficult until the storm that made U.S. landfall Monday blows over, early indications suggest the impact wasn’t nearly as bad as after Hurricane Katrina, which struck three years ago.

Some Gulf Coast retailers and construction companies are even likely to see a moderate boost in business.

“After a hurricane, when government aid flows dramatically, it tends to have actually a positive impact on economic growth, because now we’re spending huge amounts of money to rebuild, shore up, in ways that never would have been spent had we not had a hurricane,” Joel Naroff, president of Naroff Economic Advisors in Holland, Pa., said.

Some observers were breathing a sigh of relief that the storm weakened as it came ashore in south Louisiana, avoiding a direct hit on flood-prone New Orleans and boosting hope that the city would avoid catastrophic flooding.

But the weather was severe enough to force the cancellation Monday of more than 135 flights to and from airports in Louisiana, Mississippi and Alabama.

“It will be a big hit to the airlines for September,” said AirTran Airways spokesman Tad Hutcheson. “It’s usually a tough month. The only bright spot is the Labor Day weekend. Those pretty much were full flights we’ve had to cancel.”

AirTran canceled 23 flights Monday due to the storm, while Delta Air Lines canceled 21, Continental Airlines canceled 28 and Southwest Airlines canceled 65. Some airlines were hoping to resume service to Gulfport-Biloxi International Airport on Tuesday, though it was unclear when flights would be able to resume to Louis Armstrong New Orleans International Airport.

Airlines were issuing refunds or rescheduling affected passengers on other flights. Many were waiving fees for customers who made flight changes due to the storm.

Robert Hartwig, president and economist at the Insurance Information Institute, said insurance payouts will likely not be nearly as high as those suffered from Hurricanes Katrina or Rita in 2005.

“There will be thousands of claims, there will be insured losses, but they will be manageable by the resources that the private insurance industry has at its disposal,” he said. The region likely mitigated damage by enacting stricter building codes, tightening down roofs and elevating structures based on lessons learned from Katrina.

“Louisiana and much of the Gulf Coast has spent the last three years hardening its defenses for the next hurricane,” he said.

Hartwig added that the reduced population of New Orleans and the surrounding areas would also probably limit insurance payouts, which totaled $41 billion from privately insured losses on 1.7 million claims from Katrina.

In recent days, oil companies shut down virtually all oil and natural gas production in the Gulf, and the storm’s threat halted about 15 percent of the nation’s refining capacity based in the region. Any serious damage to oil platforms and rigs or prolonged refining disruptions could cause a spike in energy prices.

Eqecat Inc., a risk modeling firm, projected Monday that Gustav could knock out capacity for about 5 percent of both oil and natural gas production for the next year.

By late afternoon in Europe, light, sweet crude for October delivery fell $4.21 to $111.25 a barrel in electronic trading on the New York Mercantile Exchange.

“At this point, the (oil) markets are either discounting it or believing that the supply-demand situation is such that the markets will be able to handle whatever shorter-term dislocation would occur,” Naroff, the economist, said.

Hundreds of thousands of people were left without power due to the storm. The cost of repairing downed power lines was sure to weigh on utility providers. For the transportation sector, Gustav-related disruptions came at a busy time.

Due to the storm, Amtrak suspended service along several routes south of Atlanta, east of San Antonio and in the New Orleans area. Some of the affected service wasn’t expected to resume until Thursday.

“We projected that we were going to be up nationally 10 percent this Labor Day versus last Labor Day,” Amtrak spokesman Marc Magliari said. “The question is how much will three or four days of cancellations pull that down?”

Because of where Gustav landed, Alabama’s beach resorts, bayous and port city appeared to dodge serious damage. At Orange Beach, a Baldwin County resort where Louisiana evacuees fled in droves, whistling wind whipped palm trees and light poles, but there were no signs of major flooding.