A report by the Centre for Asia Pacific Aviation (CAPA) said conditions in an industry already reeling from the September 11, 2001 terrorist attacks in the United States were approaching unpredented crisis because of recent events.

"Recent service cutbacks are already more severe than occurred in the 1991 Gulf War on the back of what already is a distressed industry," the report said.

"There is little indication of short-term improvement.

"In some cases, the cutbacks embrace route rationalisations that were already in the pipeline, as airlines responded to a new world situation. This further exaggerates what is clearly now developing into a near-worst case scenario for the airline industry."

CAPA managing director Peter Harbison told AFP the situation were rapidly deteriorating because airlines were being squeezed before the war started.

He warned that some North American and European carriers had passed the "point of no return".

Australian flag carrier Qantas Airways Ltd. is among a string of international carriers forced to cut international routes, institute hiring freezes and instruct staff to take leave.

Qantas on Monday slashed the cost of domestic holidays by up to 40 percent after announcing last week cuts to international flights by 20 percent and warning it would not meet profit targets.

Harbison said demand had fallen by as much as 25 percent in some markets. Airlines the world over have recently announced cuts of up to 20 percent to scheduled routes.

"With the recognition that this war is closer to the beginning than the end we're starting think in terms of damage control, its not just risk management," Harbison said.

He warned that the world's biggest airline, American Airlines, could file for Chapter 11 bankruptcy within days, while the second biggest carrier, United, was already there.

"I think we're going to see some dramatic developments in the next month in the United States," he said.

The outbreak of the highly contagious severe acute respiratory syndrome (SARS) has only contributed to a dire situation exacerbated by the war.

The illness has killed at least 59 people and infected more than 1,600 in 15 countries and is being spread through air travel.

Qantas, which last week said its international flights would be cut by 20 percent until mid-July, remains one of the more robust airlines, having recorded a 428 million dollar profit ahead of the war and because of its dominance at home.

But forward bookings are so poor, described by chief executive Geoff Dixon as "horrendous" to Hong Kong, the airline has found itself in the same position as its less-favourably placed peers, such as British Airways, Lufthansa, Japan Airlines, Air France and Singapore Airways.

The CAPA said fuel prices were muted "for the time being" but a surge, which is increasingly likely if the war is protracted, would add further pain.

It said European airlines had cut schedules by between six and 10 percent due to the war.

North American carriers were badly affected, with capacity reductions of around 10 percent across the board to be implemented from early April.

The CAPA said traffic within Asia had been relatively lightly affected by the Iraq conflict, but the pneumonia outbreak posed a real threat to traveller confidence.

WAR.WIRE