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Adam Anderson

Airline industry still recovering ten years after 9/11

by Adam Anderson | Dun & Bradstreet Editor

September 13, 2011 | 3 Comments »

For the airline industry, it’s been a rigorous route to recovery since the terrorist attacks of September 11, 2001.

Few remember that even before the attacks, some of the major carriers were already facing turmoil. The reasons were typical: high expenses coupled with intense competition from some of the low-fare carriers like Southwest Airlines.

But the tragic events of Sept. 11 sent the airline industry into a tailspin the likes of which it had never faced before.

“No industry was more affected by 9/11 than the travel industry,” said Roger Dow, president and chief executive officer of the U.S. Travel Association. “We were literally on our knees in one hour.”

Even worse, the attacks were only the starting point punctuating a decade of financial misery. Remember the SARS outbreak of 2003? That was followed closely by exploding oil prices in 2005, which drove up airlines’ cost structure from about 13% of total expenses to nearly 40% or more today, according to a recent Los Angeles Times article.

As carriers desperately adjusted to the rise in oil price, they got clobbered by the recession in 2008. What happened next? A rise in bankruptcy filings as many major carriers — Delta Air Lines, Northwest Airlines, United Airlines and US Airways — were forced into bankruptcy protection. This actually turned out for the better as carriers drastically reduced costs by reducing their fleets and renegotiating contracts and pension plans.

Over the next few years, airlines gradually returned to profitability by charging passengers extra fees, everything from checked baggage to extra legroom. According to the LA Times article:

“Fees levied on passengers to cancel reservations, check luggage and other expenses generated $6.6 billion last year for the nation’s airlines, a nearly 400% increase from the fees collected in 2001.”

Many carriers also looked to mergers and acquisitions as a means of staving off high fuel costs and plummeting passenger revenue. After its merger with Northwest Airlines in 2009, Delta reported a net income of more than $590 million for 2010– a very different number than the $1.2 billion loss it reported the previous year. Also in 2010, Continental Airlines was acquired by United parent UAL Corp. in a $3 billion stock swap to create United Continental Holdings, the world’s biggest airline.

But despite its battle-tested nature, the industry still encounters its share of fresh troubles. While there will always be cycles of oil spikes (a constant in the industry) and Icelandic volcano eruptions (?), airlines now must face a steady stream of frustrated fliers suffering through the arduously slow and sometimes intrusive airport security process.

It’s all just business as usual for an industry that seems to have a new and different obstacle placed in its flight path each and every year.

“The industry is climbing out of a very deep hole,” replies Steve Lott, the airline trade group spokesman. “But we are not at a point where we are out of the woods yet.”

An insightful read, Adam. Thanks for this! A great post-9/11 post. Personally, I’m so glad that SARS is behind us. I remember Japanese cosmetics companies reporting in their annual documents that revenues were down that year and they all pointed to SARS.

The attacks were major, no doubt, but the government went overboard on security. The pilots kept tell the government and TSA that profiling was the only logical way to address this problem. They didn’t listen, until it bacame their idea. As a captain with experience dating back to 1974, I called it quits in 2005, 11 years earlier than my mandatory retirement date.

Appreciate the feedback, Catherine.

@cal10pilot. Thanks for your thoughts as well.

To perhaps add to your point about the government going overboard, according to the aforementioned LA Times article, “Washington has spent nearly $57 billion over the last 10 years to federalize security forces and to buy an assortment of screening devices that have added new expressions – “nude scanners” and “virtual strip search” among them – to the nation’s lexicon.”

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