As the world's airlines brace for the effects of a possible Gulf War2, the most worried are the financially strapped U.S. carriers that are already struggling to survive a 10% drop in demand and soaring prices for jet fuel and insurance.

The real question is how long would the war last. "If it is short and quick and reaches a pretty definitive conclusion, you get one answer. If it drags on, you get a different answer," said Boeing Chairman and CEO Philip M. Condit.

U.S. airlines already expect to lose $4-6 billion in 2003, and the Air Transport Assn. (ATA) believes a war could add an additional $4 billion per quarter in losses. ATA Chief Economist David A. Swierenga said $2 billion of that loss would be caused by a 10% drop in traffic. During the 1991 gulf war, traffic for U.S. carriers only dropped 8% and that was mostly on international routes. In the post-Sept. 11, 2001, environment, Swierenga expects a war would lead to a bigger drop-off in domestic traffic.

Not everyone thinks the overall loss of traffic will be that severe. Jon F. Ash, managing director of Global Aviation Associates Ltd. consultants in Washington, said it would be surprising to see another 10% drop in traffic given the current depressed levels in a sluggish economy. He added that traffic on the North Atlantic will probably be hit as hard as it was in 1991. But in general he says people are getting conditioned to terrorism so the loss of traffic won't be as deep and the recovery will come faster.

"Military action, if it comes, and if it is short and successful and without major [terrorism] incidents, probably will actually be beneficial to the airlines," noted Blaylock & Partners L.P. analyst Ray Neidl. "It would bring down oil prices, currently 34% higher than last fall, and induce people to travel more. In the short term, fuel costs are a major factor. Listening to oil analysts, I'm assuming the $35 per barrel price we are seeing now will be anywhere from $16-23 per barrel, which would give the airlines a nice boost." A prolonged conflict is more of a question mark, and a major terrorist incident "devastating to industry," Neidl said.