UPDATE 2-Airlines face worsening coronavirus impact, European bosses warn

(Adds CEO comments, background)

By Laurence Frost and Sarah Young

BRUSSELS, March 3 (Reuters) - The worst is still to come for
the airline industry in terms of economic damage from the
coronavirus outbreak, European carrier bosses warned on Tuesday,
but they predicted that travel demand could stabilise in the
coming weeks.

Coronavirus dominated the conversation as the heads of
Europe's biggest carriers including Ryanair's Michael
O'Leary and Willie Walsh, boss of British Airways-owner IAG,
gathered at an annual industry conference, to lobby against new
air taxes and call for improvements to air traffic control.

Airlines worldwide have been suspending flights or modifying
services in response to the coronavirus outbreak, which has now
claimed more than 3,000 lives and infected more than 90,000
people globally, after spreading from China to 77 other
countries and territories.

Walsh noted a "very significant fall-off in demand" in
Italian markets in the past week, as Italy has seen the biggest
outbreak in Europe. But he predicted demand would stabilise in
coming weeks if bookings followed the pattern seen in Asia.

"I think we will see air traffic recover in due course," he
said.

Ryanair's O'Leary agreed that the next few weeks would be
tough. He said he expected a "very deflated booking environment"
for the next two to three weeks, but should the crisis
stabilise, bookings would recover.

"I think you will see a pretty rapid return to normal," he
said.

HELP REQUIRED

As part of the European airline lobby group A4E, the
airlines - which also include Lufthansa, Air
France-KLM easyJet - called for a relaxation
of airport regulations to help them cope with the impact of
coronavirus.

That followed a call from global industry body IATA on
Monday for a suspension of rules under which airlines can lose
lucrative landing and take-off slots if they cancel flights for
a prolonged period.

"We request that a temporary waiver be granted by all (EU)
member states,” Air France-KLM CEO Ben Smith said
ahead of the annual conference of the Brussels-based lobbying
group.

Airlines also want a "common set of health requirements for
travel to and from the affected regions", he said.

But IAG's Walsh said that struggling airlines should not be
given state aid to enable them to survive the drop-off in
demand.

"I don't believe it's appropriate for governments to provide
state aid to airlines that were not sustainable before the
coronavirus," he said.

The crisis, which has led to a quarter of the short-haul
fleet of airlines like Lufthansa being grounded, comes
on top of a list of pressures on the European airline industry.

Executives at the Brussels gathering listed other grievances
including the failure to reform air traffic control networks
under the delayed EU Single European Sky initiative.

"It is a scandal that we are still flying the skies today in
the same way we were 40 years ago," Walsh said.

Taxes on flying were also opposed, with O'Leary attacking
plans by Austria's new coalition government of conservatives and
Greens to increase a tax on flights next year.

The Ryanair boss called the new taxes "the equivalent of
latter-day highwaymen".
(Reporting by Laurence Frost and Sarah Young; Editing by Tim
Hepher, Mark Potter and Pravin Char)