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.
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.”