Airline Industry

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  A position report that examines how the airline industry is faring after the terrorist attackson the World Trade Center in 2001.2,180 words, 4 sources, APA, $ 68.95 USD  Paper Summary: This paper shows that the decline in airline revenues post-9/11 served to further exacerbate the rise of low-cost airlines and the financial fragility of airlines with highfixed costs. As 9/11 devastated revenues for large airlines with high costs, low-costairlines flourished. Further, the trend toward low-cost airlines seems to be here to stay,illustrating the dangers of inflexibility and high fixed costs in the cyclical airline industry.The paper presents a literature review of articles and websites on the topic.  From the Paper: In the fallout following the events of 9/11, several major airlines filed for bankruptcy,including Swissair, U.S. Airways, United Airlines, and Sabena. Airlines struggled toreduce high fixed costs, and cost-cutting initiatives quickly followed apparent revenuedecreases, as close to 15 percent of the industry workforce lost their jobs in the lastquarter of 2001. In the six months after September 11th, close to 1,000 aircraft weregrounded, and some companies had close to 50% reductions in both flight frequency androutes. These cost reduction efforts were often successful, as Delta reduced costs by U.S.$1.1 billion, and United reduced costs by U.S. $1.2 billion (A. T. Kearney, Inc.).  Keywords: passenger aircraft apaDiscusses impact on airline of downturn in travel after 9/11. Reduction of passengers &flights. Steps that need to be taken to maintain profitability. SWOT analysis. TheSouthwest concept. Recommends building up leisure market & business travel &continuing military fare discounts. Necesity of advertising & marketing. Competitive position.  From the Paper: Southwest and the Airline Industry After September 11 While the airline industry had been falling victim to higher fuel prices and lower load factors even before September 11,the grounding of all airlines flying in, to, or from the U.S. for two days and the public'sincreasing fear of flying has caused billions of dollars in losses, and not merely in theU.S. Swissair, for generations the epitome of class among international airlines ,stopped flying until it was rescued by a $380 million bailout by Swiss banks- and thenonly until October 28. Nearly every airline in America cut back its schedules and laid off or furloughed thousands of workers. Until now, the one beacon of continuity wasSouthwest Airlines, a highly successful short-hop airline- perhaps the most profitable inthe U.S. But now, even this airline has had to make some... U.S. Department of Transportation  Research and Innovative Technology Administration Issue Brief  Number 13December 2005  Today’s airline industry presents a different picture than itdid prior to the events of September 11, 2001 (9/11), withmore passengers flying low-cost carriers, fewer empty seats,and a smaller workforce.Airline passenger travel and capacity (measured in terms of available seats) fell drastically after the terrorist attacks of September 11th, when our national air space was temporarilyclosed. The numbers of airline passenger and seatsremained low in subsequent months, but have recovered inthe following years. Available seats have increased moreslowly than air passenger travel, and have only recentlyreached the pre-9/11 peaks; in contrast, air passenger travelreached its pre-9/11 peak in July 2004 and has continued togrow. Thus the aviation industry has accommodated passengergrowth with few additional seats, which means fullerplanes.At the same time that the industry was facing this large-scaledrop and subsequent recovery in the number of passengers,there were shifts in the size of different segments of theindustry. In particular, the low-cost carriers grew significantlyand air fares decreased through this period.Network carriers responded to the pressures on the domesticmarket by reducing available seats and shifting somecapacity to the international market. They also dramaticallycut employment in order to reduce costs. Passengers Return In the August preceding 9/11, the airline industry experiencedwhat was then a record high in the number of airlinepassengers for a given month when 65.4 million travelerstook to the air. After 9/11, that number trailed off dramatically,and it took nearly 3 years, until July 2004, for theindustry to match and finally surpass the pre 9/11 levels.But the number of available seats—an industry measure of capacity— in July 2004 was just 98.3 % of its August 2001peak. By July 2005, the number of airline passengers hadreached 71 million. Airline Travel Since 9/11 B UREAU OF T RANSPORTATION S TATISTICS Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05  01020304050607080DeseasonalizedActualMillions U.S. Domestic Airline Passengers Actual & Deseasonalized Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05020406080100DeseasonalizedActualMillions U.S. Domestic Airline Available Seats Actual & Deseasonalized Note: These graphs present both actual data, and data that have beenseasonally adjusted in order to clarify the trends over time. The datacited in the text represent actual (unadjusted) values.Source: U.S. Department of Transportation, Research and Innovative TechnologyAdministration, Bureau of Transportation Statistics, T100 SEGMENTdata Nov. 21, 2005. ã Airline capacity (expressed in available seats) hasincreased more slowly than the increase in airline passengertravel. ã Low-cost carriers represent a growing portion of thedomestic aviation market. This change has been accompaniedby decreasing fares. ã Network carriers have responded by shifting capacity tointernational markets and by reducing employment to cutcosts Fewer Empty Seats In the comeback from post 9/11 lows, capacity has risenmore slowly than growth in passenger numbers. Availableseats hit a peak of 90.6 million in August 2001. But after9/11, capacity dropped dramatically as airlines groundedplanes and reduced flights to match falling demand. Only67.5 million seats were available in September 2001. In July2005, the number of available seats exceeded the pre 9/11level for the first time at 91.1 million—an increase of about0.6 percent compared with an increase of about 9.7 percentin passengers over the pre 9/11 high.Because the airlines have accommodated the surge in passengerswith only a minimal increase in the number of seats,aircraft are flying with fewer empty seats. Fewer Employees Current employment levels for network and low-cost carriers 1  are 28% below July 2001 levels as many airlines strive toreduce costs. Employment for network and low-cost carriersstood at 534,767 in July 2001. 2 But 4 years later, in July 2005,employment had fallen 28 percent to 383,859. This drop wasdriven by a decline in employment by the network carrierscompared to increased hiring by low-cost carriers. Networkcarrier employment fell by 34 percent, from 465,198 in July2001 to 308,714 in July 2005. During this same time period,low-cost carrier employment increased by 8 percent—from69,569 to 75,145. Market Changes One response U.S. network carriers made to the post 9/11market conditions was to shift capacity from domestic tointernational markets. International service represented12.0% of seats on network carriers in May 2001, increasingto 15.2 % in May 2005. 3  The shift of available seats towardthe international market occurred as the network airlineswere reacting to the rising dominance of low-cost carriers inthe domestic marketplace. The low-cost carriers vigorouslyadded capacity while the network airlines reduced domesticflight operations to reduce costs. Annual available seats onlow-cost carriers increased by 24% 4 , from 182 million in2000 to 226 million, in 2004, and passengers increased by27%, from 124 million to 158 million, during the sameperiod.At the same time there have been changes in the domesticaviation pricing structure reflecting the growing impact of low-cost carriers and other factors. Widely available, relativelyinexpensive air fares have contributed to the increase inpassenger travel. For example, the Air Travel Price Index(ATPI), which tracks changes in prices paid for airline tickets,showed in the first quarter of 2005 the lowest fare indexof any January-to-March period since 1999. Number of Employees in July for Passenger Airlines,2001–2005 Total(excludingregionalNetwork Low-cost and other Regional Other July carriers carriers carriers) carriers carriers Total 2001 465,198 69,569 534,767 — — —2002 394,686 71,263 465,949 — — —2003 332,376 74,025 406,401 44,280 8,277 458,9582004 325,436 75,994 401,430 58,038 12,668 472,1362005 308,714 75,145 383,859 60,738 13,631 458,228Note: Includes the total of full-time and part-time employees. Airlinesthat operate at least one aircraft with the capacity to carry combinedpassengers, cargo and fuel of 18,000 pounds must report monthlyemployment statistics. The “other carrier” category generally reflectsthose airlines that operate within specific niche markets, such as Alohaand Hawaiian Airlines that serve the Hawaiian Islands.Source: U.S. Department of Transportation, Research and Innovative TechnologyAdministration, Bureau of Transportation Statistics. as of Nov. 21, 2005. 1 Network and low-cost carriers do not include regional carriers. Network carriers arethe traditional hub-and-spoke carriers. 2 Employment at network carriers and low-cost carriers, based on data from RITA-BTS,
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