UPDATE 3-Airlines face worsening coronavirus impact, European bosses warn

* Airlines report big drop in demand on Italian routes

* Demand seen stabilising if pattern from Asia followed

* Airlines call for relaxation of rules to help them cope
(Adds CEO comments)

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 bosses warned on Tuesday, but
they predicted that travel demand could stabilise in the coming
weeks.

Coronavirus has hit travel demand, forcing airlines to
cancel flights and cut costs, and ask governments and regulators
for help, as they battle to get to grips with what they hope
will be short-term, rather than long-term, disruption.

The heads of Europe's biggest carriers including Ryanair's
Michael O'Leary; Willie Walsh, boss of British
Airways-owner IAG; and easyJet's Johan Lundgren said at
an annual industry conference the epidemic was upsetting growth.

"We have seen a drop in demand when you look particularly in
the northern part of Italy, but that has also spilled over to
the other parts of the network," easyJet CEO Johan Lundgren said
on the sideliness of a conference.

Italy has seen the biggest outbreak of the illness in
Europe.

IAG's Walsh also noted a "very significant fall-off in
demand" in Italian markets in the past week. 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 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.

Yet the bosses acknowledged it could get a lot worse before
it gets better.

"If we're not successful in the containment of it then there
might be a more difficult outcome," Lundgren said.

HELP NEEDED

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.

The crisis has led to a quarter of the short-haul fleet of
airlines like Lufthansa being grounded.

As part of the European airline lobby group A4E, the
airlines 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 A4E.

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

IAG's Walsh said struggling airlines should not be given
state aid to enable them to survive the drop-off in demand. But
there was a feeling governments could take other action to help
all airlines navigate this difficult period.

"I do think it is asbolutely the right thing to do to ask
governments to consider what type of support they can give their
airlines in terms of maintaining connectivity," Lundgren said.

Smith said that what set this crisis apart from SARS crisis
in 2003 was the role played by social media.

"What’s definitely different with this crisis (is) the type
of media attention it’s getting. Social media has had a
different impact on the trust and the understanding of people
who fly," he said.

Ryanair's O'Leary said social media wasn't helping but he
was confident its impact was short-lived.

"There's a lot of misinformation out there. Social media is
a scourge for idiots but common sense usually wins out in a
reasonably short period of time," he said.
(Reporting by Laurence Frost and Sarah Young; Editing by Tim
Hepher, Mark Potter and Pravin Char)