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POLL: Is 9/11 The Root Cause Of Industry Problems?  
User currently offlineEnilria From Canada, joined Feb 2008, 7144 posts, RR: 13
Posted (5 years 1 month 2 weeks 4 days 6 hours ago) and read 4827 times:

POLL: Is 9/11 the root cause of industry problems?
Solutions?

Here is my answer and grist for discussion:

I think 9/11 directly led to three bad consequences which indirectly led to countless more...

A) FUEL - Mideast tensions, fanned by the after effects of 9/11, at least majorly contributed to the increase in fuel prices that drove industry costs through the roof over the last several years even ignoring the $150 blip of last year.

B) TIME AND HASSLE - The creation of TSA and the tightening of the U.S. border has dramatically increased the hassle of flying and perhaps more importantly the time allotted to flying. IMHO, the increased time needed to allow for a trip has made short-haul much less attractive among other impacts. I think it is likely this has led to the demise of traditional Northeast shuttles (now partially RJs) in favor of Amtrak. Further, I think the damage to short-haul flying has damaged WN's original business model of hopping around. WN's fuel hedges (which gave them lower costs) masked that effect (by allowing the reduced short-haul revenue to be offset by lower costs relative to everybody else) until recently.

C) SAFETY FEARS - I think this one has largely abated (do you agree?), but in the years that followed there were certainly customers that avoided flying out of fear both that it would happen again and just from the imagery of that day.

All of these things impacted airline profitability negatively that led to declining wages, bankruptcy, revenue desperation (adoption of bag fees), and numerous other ill effects that were 3rd or 4th tier impacts.

Is there any solution to the volatility this has created other than some limited form of reregulation to allow for a steady, solid air transportation infrastructure?

23 replies: All unread, jump to last
 
User currently offlineOffloaded From United Kingdom, joined Apr 2009, 873 posts, RR: 0
Reply 1, posted (5 years 1 month 2 weeks 4 days 5 hours ago) and read 4785 times:

9/11 didn't help, but I'd say the economy was beginning to tank before then anyway. Fuel prices went bananas thanks to a hundred excuses (the Chinese / Indians etc) and speculators.

Should be an interesting thread.



To no one will we sell, or deny, or delay, right or justice - Magna Carta, 1215
User currently offlineMt99 From United States of America, joined May 1999, 6582 posts, RR: 6
Reply 2, posted (5 years 1 month 2 weeks 4 days 5 hours ago) and read 4761 times:
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I saw today that business and first class bookings have dropped 23% and economy have only dropped 7%.

Considering that Airlines make most of their money on business fare, its a huge hit.

The current crisis end up being a fault of the sub-prime mortage crisis.



Step into my office, baby
User currently offlineKhobar From United States of America, joined Mar 2006, 2379 posts, RR: 4
Reply 3, posted (5 years 1 month 2 weeks 4 days 5 hours ago) and read 4750 times:

9/11 did not cause the current problems. Bad management and labor practices are solely to blame (much like the car industry where every effort is made to maximize profit extraction at the expense of customer base). High fuel costs only worsened an already spiraling industry.

Give people a reason to want to fly (more than once).


User currently offlineStapleton From United States of America, joined Nov 2006, 280 posts, RR: 2
Reply 4, posted (5 years 1 month 2 weeks 4 days 5 hours ago) and read 4745 times:

I believe the internet changed the industry the most and the industry has not yet learned how best to deal with it. The near total transparency of price creates issues that very few other industries have had to deal with to the extent the airlines have to. While the economy and 9/11 have dramatic affects and usually shorter term, the internet has affected the industry increasingly every year it matures. The internet reduced the cost of distribution but gave consumers near perfect ability to find the lowest price and as the product become more and more a commodity, price reigns supreme. Even more so in cost conscious times like these.

User currently offlineBond007 From United States of America, joined Mar 2005, 5414 posts, RR: 8
Reply 5, posted (5 years 1 month 2 weeks 4 days 5 hours ago) and read 4745 times:

9/11 had little to do with it .. if any.

Fuel had little to do with it. 70% of an airlines' costs are not fuel related.

My opinion ...

- Poor business strategy. Much of the airlines' downfall is because they failed to follow business 101.
- Poor pricing. Very few airlines priced their fares logically, and sensibly. Those that did (e.g. WN) were the most successful.
- High costs. Many airlines did little to run a streamlined business.
- Terrible customer service. Yes, contrary to the belief of some folks, pax do change airlines loyalty based on service.
- Poor scheduling and aircraft choice. Pax would prefer on-time performance over frequency, but we ended up with hourly flights clogging hubs and few on-time.


That's my rant ...

Jimbo



I'd rather be on the ground wishing I was in the air, than in the air wishing I was on the ground!
User currently offlineKiwiandrew From New Zealand, joined Jun 2005, 8557 posts, RR: 13
Reply 6, posted (5 years 1 month 2 weeks 4 days 5 hours ago) and read 4740 times:
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interesting topic even though it has been posted in the wrong forum ( I suggested the Mods move it to 'Polls and Preferences" )

It could actually be argued that the cutbacks and drive for savings post 11 Sep 2001 actually put the airlines into better shape to survive the current financial meltdown crisis as they were forced to cut out a lot of fat and re-examine their business models .

[Edited 2009-07-17 07:15:34]


Moderation in all things ... including moderation ;-)
User currently offlineDLPMMM From United States of America, joined Apr 2005, 3591 posts, RR: 10
Reply 7, posted (5 years 1 month 2 weeks 4 days 5 hours ago) and read 4692 times:

It has almost nothing to do with 9/11.

It has almost nothing to do with oil prices.

It is the simple economics of supply and demand, market segmentation, and the rise of LCCs.

Too many suppliers that are too large with substitutable commodities chasing after too small of a market.


User currently offlineNicoEDDF From Germany, joined Jan 2008, 1099 posts, RR: 1
Reply 8, posted (5 years 1 month 2 weeks 4 days 4 hours ago) and read 4665 times:



Quoting Stapleton (Reply 4):
I believe the internet changed the industry the most and the industry has not yet learned how best to deal with it. The near total transparency of price creates issues that very few other industries have had to deal with to the extent the airlines have to.

Sorry, I don't agree. The internet has made *any* product easily comparable, not only air travel.

The problem the US airline industry has is a structural one. The problems are also highly unique to the US market due to the history of several large and strong network carriers competing in *every* market in the US while e.g. european carriers had their healthy homebase.

Nevertheless, at some point in history it was missed to adapt to the situation.
Modernizing the fleet in time (!) is one point, over competitveness and the missing will to let legacys fail another.
Maybe it is a too complex and therefore expensive task to manage to be an all-US-serving airline with several hubs, diverse route network and therefore challenging task in spares supply, adequate aircraft allocation as well as crew organization.

The unions and the seemingly stubborn seniority discussion won't help either, but here I think it might not be to different elsewhere.

Last but not least, trusting in the various service related comments of many users here, flying is not too much of fun in the US, but I shouldn't comment on that, I have no first hand expierience.


User currently offlineFxramper From United States of America, joined Dec 2005, 7276 posts, RR: 85
Reply 9, posted (5 years 1 month 2 weeks 4 days 4 hours ago) and read 4631 times:
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Quoting DLPMMM (Reply 7):
It is the simple economics of supply and demand, market segmentation, and the rise of LCCs.

Add mismangement to the list and you've got a good foundation for failure.


User currently offlineStapleton From United States of America, joined Nov 2006, 280 posts, RR: 2
Reply 10, posted (5 years 1 month 2 weeks 4 days 4 hours ago) and read 4629 times:



Quoting NicoEDDF (Reply 8):
Sorry, I don't agree. The internet has made *any* product easily comparable, not only air travel.

There are fundamental differences between air travel and "any" product in that air travel has been purchased through the internet (although they were closed reservation systems) for nearly 50 years. Only in the last 15 did the actual customer have the ability to do it themselves and increasingly so every year. There has never been a problem getting people to fly. Just lower the fare. That is what happens with the internet. If one airline has an open seat and wants to sell it, every person with a computer can see what that airline wants to sell it for now. The competition can see that too and then adjusts their fare accordingly. This creates unprecendented movement toward lower fares. While "any" product could be stored until a better price comes in, that airline seat cannot and once the door is closed, it cannot be sold. So while you may disagree, this is a fact all airlines have to deal with every day and is quite different than that item on shelf or in a store room that is there until sold.


User currently offlineFalcon84 From , joined Dec 1969, posts, RR:
Reply 11, posted (5 years 1 month 2 weeks 4 days 4 hours ago) and read 4592 times:

No.

The industry had a few years of fantastic prosperity not long ago, which means that, at that time, it had recovered from the problems of 9/11. This latest downturn is caused by events far removed from 9/11.


User currently online2175301 From United States of America, joined May 2007, 1062 posts, RR: 0
Reply 12, posted (5 years 1 month 2 weeks 4 days 4 hours ago) and read 4574 times:

No. 9/11 had nothing really to do with the current problems.

I see the current state of affairs largely caused by two regulatory items:

1) How bankruptcy laws work. I think too few companies are required to liquidate. Thus, in this case - too many airlines "survived" through bankruptcy and thus within the US the industry did not have to adopt better strategies and practices.

2) US and Global financial policy. This allowed the creation of very unstable financial "capital" and allowed many people - and many companies - to short term live beyond long term supportable levels. For example, this is why first class and business bookings were so great for over a decade - and have now declined to a more realistic level. Because of this - the structure of the airlines for over a decade was also wrong for long term operations.


The only thing I can predict: The airline (and other) industries are in for a substantial adjustment. In fact - the entire "instant gratification consumer market" will be permanently reduced and it will affect many industries.


User currently offlineDartland From United States of America, joined Apr 2005, 643 posts, RR: 2
Reply 13, posted (5 years 1 month 2 weeks 4 days 3 hours ago) and read 4543 times:
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I agree with most comments here than 9/11 has little to do with today's situation.

The reality is air travel, like most other industries, are cyclical with the overall economy. The US economy goes into recession about once a decade. The timing and depth of that recession are hard to predict, but the presence of one is a near certainty.

Some factors that contribute to the unusually high suffering of airlines relative to other cyclical industries:

1) As someone astutely mentioned above, internet pricing is certainly a factor. Few other service industries are as commoditized, all b/c of internet pricing. Ironically, it was the airlines themselves that put this system in place so they could collude on prices!! Then they got caught, and the system turned on them. They became victims of their own greed and still are today. They have not been able to adjust to this new world b/c of the hyper-competitive environment and it still hurts.

2) Unions. I'm not anti-union by any stretch -- but the facts speak for themselves: Nearly every heavily unionized industry in the US has destroyed value over the the long-term (think autos). It's a simple wealth transfer to employees that otherwise would go to bottom line and investors. It might be a fair trade-off, that's not for me to judge. The reasoning behind this is not that unions take too much money, but unions make it MUCH more difficult to adjust during hard times. Reducing costs is infinitely harder in a unionized world which means that cyclical businesses cannot adjust in a timely manner. There is an asynchronous timing issue between contract terms/length and the reality of the business needs.

3) Bankruptcy and financial policy. Also stated above. Darwinian capitalism is not a bad thing in general. It's like when a forest fire destroys a forest as part of a natural cycle, it re-grows healthier. When businesses fail, they allow the industry to regroup and a natural cycle of change. When you artificially change that dynamic, bad things are bound to happen. Again, I am by no means saying some of the large carriers should have failed in bankruptcy (lawmakers hands are tied and for good reason) -- there is just no good answer to these issues. But the lack of this industry re-growth that would come from major carriers failing prevents the industry-wide resurgence that would be required to weather the next cycle.

Just my thoughts. I do not think 9/11, security, safety, or oil have anything material to do with the industry at all.

I also don't think mismanagement is much of a factor either. Executives have made bad calls before, for sure, but rampant mismanagement does not lead to industry-wide failure -- it leads to isolated failure when competitors win.


User currently offlineFrmrCAPCADET From United States of America, joined May 2008, 1714 posts, RR: 1
Reply 14, posted (5 years 1 month 2 weeks 4 days 3 hours ago) and read 4500 times:

It is really easy to underestimate the damage the 'hassle factor' has done. I used to drive 80 miles to Seattle for a quick trip to Spokane, sometimes staying only the day. The 2 hour rule ended that. It is alsIo painfully true that a lot more flying is elective than most of us would have thought. I notice in my own family that we are decreasingly willing to fly if there is any alternative. In fact people are driving when they really should be flying.


Buffet: the airline business...has eaten up capital...like..no other (business)
User currently offlineRidgid727 From United States of America, joined Jul 2008, 1115 posts, RR: 0
Reply 15, posted (5 years 1 month 2 weeks 4 days 3 hours ago) and read 4480 times:

Quoting DLPMMM (Reply 7):
It is the simple economics of supply and demand, market segmentation, and the rise of LCCs.

What new LCC have started and are still around since 9-11? (only one I can think of is Virgin America) After 9-11 some LCC went away, which should have made it better for the existing carriers.
Over supply in most markets is simply reactionary business practices.

[Edited 2009-07-17 09:34:41]

User currently offlineDCA-ROCguy From United States of America, joined Apr 2000, 4499 posts, RR: 33
Reply 16, posted (5 years 1 month 2 weeks 4 days 3 hours ago) and read 4442 times:

9/11, IMO, has little to do with the industry's problems. It mostly set existing problems in sharper relief. As Khobar and others have said, the bad management and labor policy--principally inflated and inefficient cost structures--have been the main problems. 9/11 accelerated the rationalizing process in the cost of providing air travel that had begun with Deregulation and had been proceeding in fits and starts since then.

The "limited regulation" that's needed is antitrust regulation to prevent collusion, and that's generally in place, though it probably can be improved some. The Internet and increased transparency in pricing are extremely good things. Consumers rightly should have a share of the power in setting the price of air travel. That's how economics is supposed to work--investors/ management, employees, and consumers all help shape the cost and price.

Maybe it's just me, but I don't find all that much hassle for taking short flights. I just budget maybe a half-hour more at the airport than I did before 9/11.

Jim



Need a new airline paint scheme? Better call Saul! (Bass that is)
User currently offlineDLPMMM From United States of America, joined Apr 2005, 3591 posts, RR: 10
Reply 17, posted (5 years 1 month 2 weeks 4 days 2 hours ago) and read 4430 times:



Quoting Fxramper (Reply 9):
Add mismangement to the list and you've got a good foundation for failure.

I submit that the problems are structurally inherent regardless of any mismanagement. Some airlines will need to disappear for an equilibrium to take hold for a period. It is all a part of the econimic evolution that has occurred throughout history. (Buggie whip manufacturers example).

Quoting Ridgid727 (Reply 15):
What new LCC have started and are still around since 9-11? (only one I can think of is Virgin America) After 9-11 some LCC went away, which should have made it better for the existing carriers.

The problems were around before 9/11 and have gotten worse over time.

Looking at the number of LCCs is meaningless, as you need to look at the overall market share (ASMs and flown seat miles) of LCCs verses legacies since deregulation.

LCCs 20 years ago had about 10% market share. That market share has increased to over 30% today.


User currently offlineRidgid727 From United States of America, joined Jul 2008, 1115 posts, RR: 0
Reply 18, posted (5 years 1 month 2 weeks 4 days 2 hours ago) and read 4407 times:



Quoting DLPMMM (Reply 17):
LCCs 20 years ago had about 10% market share. That market share has increased to over 30% today

And the total market has increased how much in 20 years?


User currently offlineAvConsultant From United States of America, joined Feb 2006, 1360 posts, RR: 3
Reply 19, posted (5 years 1 month 2 weeks 4 days 2 hours ago) and read 4363 times:



Quoting DLPMMM (Reply 7):
It is the simple economics of supply and demand, market segmentation, and the rise of LCCs.

Too many suppliers that are too large with substitutable commodities chasing after too small of a market.



Quoting Bond007 (Reply 5):
My opinion ...

- Poor business strategy. Much of the airlines' downfall is because they failed to follow business 101.
- Poor pricing. Very few airlines priced their fares logically, and sensibly. Those that did (e.g. WN) were the most successful.
- High costs. Many airlines did little to run a streamlined business.
- Terrible customer service. Yes, contrary to the belief of some folks, pax do change airlines loyalty based on service.
- Poor scheduling and aircraft choice. Pax would prefer on-time performance over frequency, but we ended up with hourly flights clogging hubs and few on-time.

IMO, you two are "spot on".

Legacy carriers business practices are a joke!! Bigger is not better whether it's the largest fleet, flight saturation of a market or greatest market share by cutting out the competition at all cost. And worst of all, the strategy to address LCC is deployment of the RJ's. They're the smallest fleet so must net the lowest cost.

If the legacy carriers care about survival, they better right size their fleets and/or do something with the "Scope Clauses" and "No Furlough Clause". Is it ironic that B6, FL, F9 & SW aircraft size falls into the AA gap, in seats, between mainline & MQ??? Prior to the merger and 737-700, so did DL. My favorite is when I read the criticism of FL starting all markets as Seasonal or dropping a market. So it's perfectly acceptable to sustain a money losing route???

What is crazy to me are the Board of Director in allowing these practices. I'll guarantee you the other company Boards they sit on do not conduct similar business practices. When Board of Directors goes outside a the company to replace the CEO, you never see them selecting someone from a LCC. Then again, the LCC were started from guys from Legacy carriers who saw it best to start from scratch. Some of these dinosaurs have to go.


User currently offlineDLPMMM From United States of America, joined Apr 2005, 3591 posts, RR: 10
Reply 20, posted (5 years 1 month 2 weeks 4 days 1 hour ago) and read 4347 times:



Quoting Ridgid727 (Reply 18):
And the total market has increased how much in 20 years?

In inflation adjusted real dollars? very little compared to the increase in ASMs..


User currently offlineThirtyEcho From United States of America, joined Dec 2001, 1649 posts, RR: 1
Reply 21, posted (5 years 1 month 2 weeks 3 days 14 hours ago) and read 4312 times:

I used to commute 2 to 3 times a week over a 200 mile stage length for day trips. This involved calling in a reservation, driving to the in-town airport, getting on the plane and paying cash for my round trip in flight. I landed at another in-town airport.

Could I do that today? Hell no. The airport has been relocated to the boondocks, I would have to get to the airport an hour before flight time and the same thing for the return. A total time waster.

For my money, hassle is one of the primary reasons for airline malaise.


User currently offlineJetterrosie From United Kingdom, joined Oct 2008, 60 posts, RR: 0
Reply 22, posted (5 years 1 month 2 weeks 3 days 9 hours ago) and read 4299 times:

Another interesting slant is whether the bailout of some airlines post-9/11 had anything to do with the current financial crisis. I've heard a lot people say that it has so would be interesting to see what people on here think.

User currently offlineBabybus From , joined Dec 1969, posts, RR:
Reply 23, posted (5 years 1 month 2 weeks 3 days 5 hours ago) and read 4289 times:

I think it started in the UK with Mrs Thatcher and her nutty economic ideas. It just took a while to come to fruitition.

9/11 was the end of New York as a safe tourist destination for airlines, hence all the discounting on the route now.


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