www.chron.com March 4, 2003, 11:29PM By BILL HENSEL JR.

Continental Airlines is projecting its trans-Atlantic passenger traffic will fall by 15 percentage points this month, largely because of worries about a possible war with Iraq.

In a filing with the Securities and Exchange Commission, Continental also said that demand is weak throughout its system and it expects a poor showing in April.

"Trans-Atlantic bookings are looking weak in March, mainly due to concerns about a conflict with Iraq as well as the shift of Easter," Diane Dayhoff, Continental staff vice president for finance, wrote in a letter to the SEC on Tuesday. "We anticipate that our March trans-Atlantic load factor will be down about 15 points year over year."

A load factor is a calculation widely used by airlines to determine how full planes are.

April bookings "are currently showing some softness as well," Dayhoff wrote.

The figures included in the Houston-based carrier's regulatory filing are the first declarative projections from an airline about how it expects war with Iraq to impact passenger travel.

Continental, like most other major airlines, has been losing millions of dollars because of a sluggish economy, the aftermath of Sept. 11 and changes in business travel trends.

In addition to the impact of war jitters, the Easter holiday, which fell in March last year, has shifted to April. That will also cut into the March bottom line.

February's storms hurt Continental's operations in the Northeast and Midwest, according to Dayhoff. She said the company estimated those storms cost the company $10 million to $15 million before taxes.

Continental said in a report earlier this week that its load factor for February was 68.9 percent, 3.2 points below the load factor for February 2002.

Credit Suisse First Boston analyst Jim Higgins expressed disappointment with Continental's load factor for February. Credit Suisse had estimated a 2 percent increase in capacity for the airline.

The ongoing impact of the potential for war with Iraq on airline traffic coupled with the shift of the Easter holiday from March into April "suggests softer than usual trends," Higgins said in a report released Tuesday.

"We therefore expect downward revisons" to first-quarter earnings estimates, Higgins added.

Shares of Continental were down 22 cents Tuesday, winding up at $5.14 at the close of trading on the New York Stock Exchange.

Geopolitical events have led to higher fuel prices, Higgins noted, including jet fuel. The price of crude oil has risen 15 percent since the first of the year and is about 60 percent above last year, while jet fuel is up 75 percent, he said.

"The recent strength in crude prices will only exacerbate the airline's revenue softness," Higgins said.

The American Petroleum Institute's John Felmy attributed the crude oil price increase to a "perfect storm" situation of Venezuela shutting down production, very cold weather in the United States and nervousness over Iraq.

Felmy, the petroleum institute's chief economist, said while he could not speculate about what will happen with prices, he noted that winter will end soon and crude production already has begun to rebound in Venezuela.

"It is going to be how all of those factors come together that will affect crude prices, and that will in turn affect jet fuel prices," he said.

www.upi.com From the Business & Economics Desk Published 3/3/2003 3:02 PM View printer-friendly version

Here is a look at more of Monday's top business stories:

-0- War fears keep markets on unsteady footing

NEW YORK, March 3 (UPI) -- Concerns about a possible war against Iraq rattled financial markets, and stock prices on the New York Stock Exchange and the Nasdaq Stock Market were mixed in early afternoon trading Monday.

The blue-chip Dow Jones industrial average was up 32.21 points, or 0.41 percent, at 7,923.29. The tech-heavy Nasdaq index was off 1.90 points, or 0.14 percent, at 1,335.62.

The broader New York Stock Exchange composite index was up 29.27 points to 4,745.34, the Standard & Poor's 500 index was up 2.78 points at 843.93, the American Stock Exchange composite index was down 0.91 point at 829.72, while the Wilshire 5000 Index was up 23.82 points at 7,996.42.

U.S. Treasury prices rose. The 10-year bond was up 3/32 to 101 20/32. Its yield, which moves in the opposite direction of its price, was down to 3.68 percent from 3.69 percent late Friday.

-0- Brazil close to power company takeover

RIO DE JANEIRO, Brazil, March 3 (UPI) -- The Brazilian state development bank is likely to take control of a U.S.-owned utility that failed to meet its debt payments, local media reported.

The BNDES development bank has refused to roll over a $329 million debt payment owed it by a subsidiary of AES Corp., the U.S. electricity company, according to local reports.

The bank has the right to collect its collateral -- shares in Eletropaulo, Latin America's largest electricity company, which would give it control of the outfit.

Foreign investors have kept a close eye on this situation, as many fear it could signal the re-nationalization of privatized companies under the new leftist President, Luiz Inacio Lula da Silva.

BNDES declined to comment, citing a confidentiality agreement. The bank said it was up to AES to inform its stockholders and the public of the decision, made at the start of Brazil's carnival season, when offices are closed.

AES has yet to comment on the matter.

AES has asked BNDES to renegotiate its debt, and BNDES had already rolled over an $85 million payment owed it by AES in January.

The Virginia-based AES owes BNDES some $1.2 billion in debt, money borrowed to invest in three Brazilian utilities during the aggressive privatization of the late 1990s.

www.accessatlanta.com [ The Atlanta Journal-Constitution: 3/4/03 ] By SCOTT LEITH Atlanta Journal-Constitution Staff Writer

Sales are sluggish, prices in stores are falling, and bottlers are making less and less money.

That's the current business landscape for Coca-Cola in Japan, for years held high as one of the company's star markets.

While Japan remains a model of innovation for Coke and the source of more profits for the company than anywhere but North America, Japan also has become what many observers see as Coke's single-biggest trouble spot worldwide.

Coke's challenges in Japan can get overlooked, given the noisier problems elsewhere: boycotts in the Middle East, for example, and sales disruptions in volatile Venezuela.

But those are little markets in comparison. Japan accounts for about $1 out of every $5 that Coca-Cola makes in profits. Even though Coke's Japanese business is stable, several analysts are concerned about future growth.

"It's important for Coke to have a better-than-stable outlook for Japan," said Andrew Conway of Credit Suisse First Boston.

Coke's Japanese situation has been getting an increasing amount of buzz from analysts and even the media. A Japanese business publication, Toyo Keizai, recently detailed what it called the "melancholy" in Coke's Japanese bottling network.

"If Coca-Cola continues this way, its entire system will sink," the publication said, as translated from Japanese.

That judgment might be over the top, but the article was noteworthy in merely highlighting the worries of Coke bottlers. In Japan's business culture, such public airings can be unusual.

Bottlers are critical because they actually make and distribute most products. Coke itself earns much of its money by selling syrup to bottlers.

Coke has recently talked of improving bottler profitability in general as a way to ultimately help the company itself. Coke and its biggest bottler, Atlanta-based Coca-Cola Enterprises, have both noted a much-improved relationship in recent times.

In Japan, however, bottlers have experienced "significant declines" in profits, said J.P. Morgan analyst John Faucher, while Coke is "posting impressive profit growth."

"The deterioration in the Japanese bottling system's operating profit situation is not a short-term trend, either," Faucher said in a report. "Over the past few years, we have seen precipitous declines."

While Coke Japan's profits have grown, statistics compiled from five publicly traded Japanese Coca-Cola bottlers show a collective decline of about 15 percent in operating profit in 2002, according to J.P. Morgan. On the bright side, the bottlers have remained profitable.

To be sure, the hurdles in Japan are complex. Coke and its bottlers are dealing with a wobbly economy, including prices that are on a deflationary slide. Political reforms are slow in coming.

The Japanese marketplace is changing too, and not to the advantage of the Coca-Cola system. In Japan, about 42 percent of Coke's sales volume comes from vending machines. Coke has 1 million of them, and they yield hefty profit margins.

Increasingly, however, Japanese consumers are buying more beverages in supermarkets. These stores provide good sales volume but slimmer profit margins.

Mary Minnick, who runs Coke's Asia division, is a former president of Coca-Cola Japan. She knows the region well.

In an interview, Minnick said plans are percolating to improve sales in Japan, and she downplayed the problems.

"None of this is really new," she said, adding that there are many reasons for the declines. Coke bottlers, she said, are "very profitable" by average Japanese standards.

But Coke's sales growth has been slim in Japan. In 2002, volume increased 2 percent for the whole year, while it dropped 1 percent in the fourth quarter.

Soft sales are a big issue for Coke, even though the company remains a powerful force in the Japanese beverage market. The company's top-selling products are Coca-Cola and Georgia Coffee.

According to Credit Suisse First Boston, Japan accounts for about 22 percent of Coke's worldwide profits, even though it generates just 5 percent of Coke's sales volume. That makes each case sold more profitable than anywhere else, including the United States, where volume is far greater.

In Japan, however, Coke finds itself "at a crossroads" with its bottlers, said Bill Pecoriello of Morgan Stanley. "The bottlers are trying to focus on their profits," he said, while Coke believes bottlers can cut costs as one way to improve results.

That tactic is being pursued through joint buying of many goods needed to produce soft drinks, Minnick said. Coke itself has cut costs, too, including a 40 percent staff reduction in 2000.

There are other changes in the works. Japan has 15 different Coke bottlers. They produce most, but not all, of the beverages they sell. In one move that could appease them, Coke is negotiating to give bottlers part ownership in a Coke-owned unit that makes tea drinks.

At the moment, bottlers handle distribution of the popular products but don't make as much money because they aren't the manufacturers.

On the other hand, Minnick said, she'd also like to increase joint manufacturing as a way to cut costs. "It involves some hard choices," she said. Cuts would be likely. Even with those kinds of changes in mind, Coke is "perfectly comfortable" with having so many bottlers, Minnick said, so forced consolidation is not on the table.

Hisashi Nakai, an analyst who follows the beverage industry in Japan, said he believes Coke and its bottlers can solve their problems but "only when Japan's national economic problems will be solved."

As for other changes in the marketplace, the reality is that Japan always has been an evolving place. Consumers there are well-known for constantly shifting to new products.

What Coke faces is a "Herculean task," Faucher said, that doesn't offer easy solutions. "We think that over the next several years, system profitability will continue to come under significant pressure."

www.dailytelegraph.co.uk By George Trefgarne, Economics Editor  (Filed: 03/03/2003)

On the floor of the Baghdad stock exchange, they are frantically bidding up shares in expectation of Saddam Hussein's removal.

The exchange is only 10 years old, but the betting is that Saddam will soon be history and the Iraqi economy will start to boom. Hotel stocks are in special demand: they could be fully booked for the first time in a decade.

The Baghdad brokers may be novices, but my hunch is they are on to something. As every day goes by, there is a growing economic case to get rid of Saddam. The costs of not having a war now exceed the likely costs of having one.

Indeed, this is one of the principal arguments for an invasion. After all, economic advantage always used to be one of the main motives behind British foreign policy. This is not to negate the importance of human rights or the risk of lives being lost, merely an unsentimental assessment of what is in our legitimate interest.

The world economy is on a precipice and the uncertainty created by the prolonged Iraqi crisis is in danger of tipping it over the edge. A downturn correcting the imbalances left by the 1990s boom was inevitable. But Saddam is contriving to turn this into a recession through his policy of prevarication.

Whatever else is in his armoury, he has fired a weapon of wealth destruction.

Yet The Daily Telegraph's Defence Editor, Sir John Keegan, believes a war is likely to be short. Iraq's conscript army and the Republican Guard are no match for American and British forces.

The most obvious damage caused by Saddam's continued grip on power is disruption to the world oil supply. Last week, light crude touched $40 a barrel in New York, the same level as at the time of the last Gulf war.

The Iraqi crisis has unfortunately coincided with a strike in Venezuela and a severe winter in the north-eastern United States. Traders are stockpiling crude in the expectation that Iraq will only drip oil on to the market over the next few months. Petrol could soon be 80p a litre. As a rule of thumb, every time the oil price rises by $10, it takes half a per cent off world economic growth.

But if and when we attack, Iraq's oil fields must obviously be seized. According to various newspaper reports, special forces have already been detailed to do so. It would be irresponsible not to. According to BP, about two thirds of the world's energy comes from oil and gas. Unless we want to turn the lights off and stay at home shivering, seizing Iraq's "oil weapon" is a prudent priority.

Naturally, France does not share our embarrassment over these things. Reports on the Energy Intelligence wire service say Total-Fina, which is part-owned by the French state, has been in secret negotiations with Baghdad about taking over the West Qurna field from Russia's Lukoil. (Stitching up the Russians in this manner could be a huge blunder from Saddam.)

But if Iraq's oil is secured and the taps fully turned on for the first time since the 1980s, the oil price will plunge. This will give the world economy an instant boost. Defeating Iraq will block the economic wellspring of Arab power and help dry up the millions of dollars that have found their way into the hands of so many terrorist organisations and despots.

It will also weaken Opec's ability to rig the oil price and loosen our dependency on Saudi Arabia.

It's not just oil. Like a desert saboteur pouring sand into a well, Saddam is jamming up the world economy by introducing friction into the system. Everywhere the appetite for risk and innovation is disappearing, to be replaced by despondency and fear. Consumer confidence has fallen to its lowest since 1998, as has business confidence.

According to a survey last week from the research group Martin Hamblin GfK, British consumers say it is the worst environment in which to make a major purchase since the early 1990s. Manufacturing investment has fallen to its lowest since records began in 1965.

By pulling in their horns, individuals and companies are merely behaving rationally. Saddam is cocking a snook at international institutions and undermining the authority of the West. He is subtly jeopardising the foundation on which all economic activity is built - security and the safety of property rights.

Each grain of sand that Saddam sprinkles into the system makes our prosperity more fragile, and people can sense this. If Saddam succeeds in putting off an invasion altogether, every other two-bit gangster will know they can attack the economic order of the West and its citizens with impunity.

In these circumstances, it is hardly surprising that stock markets are in such a lamentable state and the FTSE 100 index is now at half its peak. The market is saying that the outlook for trade, travel, investment and consumer demand is deteriorating.

However, imagine if Keegan and those cheeky Iraqi stockbrokers are right and there is a quick victory. The risks sanding up the economy will be blown away and confidence will slowly return. The oil price will fall. The authority of the West will be safeguarded.

If what happened in the last Gulf war is a guide - when the stock market rose once the shooting started - shares will start to recover. Indeed, there are those who say the rise could be euphoric.

It pains me to say it, but what this economy needs is a war.

story.news.yahoo.com 2 hours, 58 minutes ago Add Top Stories - The New York Times to My Yahoo! By DAVID LEONHARDT The New York Times

The most common cause of recessions, a surge in oil prices, is again afflicting the global economy.

Just as they have before every American downturn over the last 40 years, energy costs have risen significantly in the last year, capped by a sharp spike since December. With more money being spent on gasoline and heating fuel, economic growth has slowed in both the United States and Europe, and the uneven recovery that began in late 2001 is facing perhaps its biggest threat yet.

Most forecasters expect the United States economy to avoid a new recession this year, saying that only an unexpectedly protracted war in Iraq (news - web sites) would keep oil at its current price or higher. But any war is an unknown, and the price increases for both oil and natural gas have already caused consumers to cut back on other spending. The increases have also created a new problem for businesses trying to emerge from the hangover of the late-1990's boom.

"The economy is extremely fragile," said Mark M. Zandi, the chief economist at Economy.com, a research company in West Chester, Pa. "We've got some real problems if this drags on for any length of time."

Energy costs began rising more than a year ago, when the Organization of the Petroleum Exporting Countries cut production in response to the weak global economy. The potential war in the Persian Gulf, political chaos in Venezuela and a cold winter in the United States caused the price of a barrel of oil to soar to almost $40 on Thursday, the highest since Iraq invaded Kuwait in 1990, before it retreated to $36.60 on Friday in New York. That is about 69 percent higher than it was a year ago.

Every time that oil prices have risen by at least 60 percent since World War II, a recession has occurred in the United States, with the exception of a one-month blip in oil prices in 1987. The current annual increase is similar in size to the jumps of late 1990, when a recession was starting, and the summer of 2000, nine months before another began.

Higher energy costs reduce economic growth by effectively forcing families and businesses to send more money to a small number of oil-producing countries, leaving less to be spent on goods and services that create jobs at home.

Energy prices affect Europe and Japan even more severely than the United States, which produces more of its own oil and natural gas. Britain reported last week that its economy had grown at the most sluggish pace in 10 years during the last three months of 2002. The German economy shrank at the end of last year for the first time in a year.

"The single best cyclical indicator for the world economy is the price of oil," said Andrew J. Oswald, an economist at the University of Warwick outside Coventry, England. "Nothing moves in the world economy without oil in there somewhere."

In recent weeks, a number of big American manufacturers have blamed higher energy costs for cuts in their earnings forecasts. A few have cited oil prices while postponing new investments that could add jobs, even as an overall rise in business spending has suggested that the economy might be picking up speed were it not for energy.

For example, DuPont, the large chemical maker, recently delayed until June an expansion of its business that had been scheduled to start in February, according to Ann K. M. Gualtieri, a spokeswoman.

In Elkhorn, Wis., Hudapack Metal Treating, which employs 125 people, is investing in technology to make its furnaces less dependent on natural gas which costs more than twice what it did a year ago rather than spending to increase its production of bolts for pickup trucks.

"It's real bad," said Gary Huss, the president of Hudapack, which is merely breaking even. "You can't take an extra $20,000 a month, throw it at gas prices and expect to be profitable."

The ailing airline industry is also being hit hard. American Airlines will probably spend about $200 million more on fuel this quarter than it did a year ago. Standard & Poor's lowered the company's credit rating on Friday, saying fuel costs were one reason that American might have to file soon for bankruptcy protection.

Many companies buy advance fuel contracts, a practice known as hedging, to protect them from some of the short-term price increases. United Parcel Service has purchased gasoline hedges, but it will still increase the fuel surcharge on its deliveries to 1.5 percent tomorrow, from 1.25 percent, because of increased costs.

Rising oil prices appear to be helping keep layoffs at a pace that few analysts expected, according to government figures, delaying any major improvement in the nation's moribund job market. The economy employs almost two million fewer people than it did two years ago.

Consumers, paying almost 50 percent more for gasoline than a year ago, in turn are reducing their spending on other goods. Over all, purchases at American retail chain stores fell 1.1 percent in January, according to the Bank of Tokyo- Mitsubishi, which adjusts its numbers for seasonal variations.

At 7-Eleven, people are buying smaller cups of coffee than they did in January and more individual sodas in place of 12-packs, said James W. Keyes, the chief executive. Consumers are also buying less premium gasoline.

"We see the change immediately," Mr. Keyes said. "A 20- to 30-cent-a- gallon shift at the pump can take as much as $50 from the working person each month."

Sales of sport utility vehicles and pickup trucks have fallen recently, while car sales are still rising. The largest trucks, like the Chevrolet Tahoe and Lexus LX 450, are selling particularly poorly compared with a year ago, according to Morgan & Company, a research firm. Analysts are divided over whether fuel prices are a reason, noting that some carmakers have recently reduced discounts and sales incentives for many trucks.

With gasoline prices and heating costs up sharply during a cold winter, families are spending about 5 percent of their budgets on energy, up from 4.1 percent at the start of last year, according to Economy .com.

About one-third of Americans say the recent spike has caused them "financial hardship," according to a recent Gallup poll. More than one- quarter said they thought that gas prices would be near their current level six months from now, and about one half said they would rise.

"I think it's going to get much worse," said Teri Chavez, a public relations executive in Denver, as she filled the tank of her blue Volvo station wagon last week. "Does it mean that I'm going to stop driving? No. But I might think twice before I take my car up in the mountains."

Ms. Chavez said she had "a silly rule" that she would not spend more than $20 on gas at one time and she was getting much less gas than she used to.

In 1991, oil prices fell almost as soon as the United States attacked Iraq, and many economists think the same could happen this year. Even if a war temporarily reduced the supply of energy, President Bush (news - web sites) could release oil from the nation's Strategic Petroleum Reserve to bring down prices, analysts note.

But because oil inventories are lower than they were 12 years ago, a price decline could be smaller today than at the outset of the Persian Gulf war (news - web sites).

Based on the price of oil futures contracts, investors are expecting oil prices to remain around $38 a barrel through April and then gradually decline, falling below $30 by the end of the year.

At those levels, oil prices would still probably prevent the economy from growing rapidly this year. But they would also make a new recession unlikely, particularly because business executives have recently shown signs of optimism, increasing their investments in new technology and equipment after almost three years of cuts.

"It's definitely a negative," said William C. Dudley, the chief United States economist at Goldman, Sachs, referring to the cost of energy. "It's just not at the point where we think it's recessionary. But it's fair to say people have generally underestimated the impact of oil-price spikes."