Air Canada Grounds Planes As 'ruinous' Sars and War Hit Home

Canada's cash-strapped national airline is to ground 40 aircraft due to a "terrible" slump in passenger numbers caused by fears about the deadly Sars virus at its busiest hub, Toronto.

Air Canada - which filed for bankruptcy protection last month - yesterday revealed that Sars had cost it C$125m (£55m) in April. Its losses have widened from C$2m to C$5m a day.

The carrier said business travel had all but dried up as firms have been warning staff to avoid Toronto. It said it was having a "ruinous" effect on summer bookings.

Chief executive Robert Milton said: "I do not expect international travel demand to Canada to recover in the near term. The terrible revenue environment we are now facing with Sars immediately after the war with Iraq necessitates drastic action to survive what is expected to be one of our weakest second and third quarters in history."

Air Canada is cutting its route network by 17%, including the withdrawal of 60% of its seats to Asia. The airline lost C$828m last year.

The Canadian government this week launched a C$6m global advertising campaign in an attempt to attract visitors. A combination of Sars and the country's refusal to join the war in Iraq, which has upset American travellers, is expected to costits tourism industry C$450m this year.

Air Canada, which is the world's 11th largest airline, has debts of C$13bn. The airline announced in March that it was cutting 3,600 jobs.

The management faces a battle against the clock as cash reserves drain away. The airline's cash balances fell from C$1.06bn to C$558m during 2002.

Another carrier hit by Sars, Singapore Airlines, yesterday said it was dropping 60 weekly services. The airline has cut its route network by some 31.5% since March.

Hong Kong's airport authority said its passenger numbers had collapsed by 68% during April; flights fell by 27.9% and the short-term outlook remains uncertain.

In Germany, Lufthansa revealed a first-quarter loss of €356m (£255m), blaming Sars and competition from low-cost airlines such as EasyJet, Air Berlin and German Wings. Iata, the global airlines organisation, has estimated that the industry will lose $8bn (£5bn) this year as war, pestilence and economic gloom cause misery around the world.