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Economic downturn

Air transport, including civil aviation, is one of the world’s most important services. Its development and its technical and service achievements make air transport one of the great contributors to the advancement of modern society. Air transport is labour-intensive. Computers have enabled airlines to automate many tasks, but there is no changing the fact that they are a service business, whose customers require personal attention. More than one-third of the revenue generated by airlines goes to pay the workforce.

In part because of its long history as a regulated industry, the airline sector is highly unionized. The industry – as well as its workforce – is experiencing a period of unprecedented change. Three interlinked developments are combining to transform the structure of the industry: progressive liberalization of the product market, the drive to privatize or commercialize publicly owned carriers and other installations and services, and airline management’s accelerated pursuit of globalization, in terms of both product market and labour market.

September 11, 2001 will always be considered a turning point in the history of America. The events of 11 September 2001 were unlike any other shock experienced in the history of civil viation. They have had a unique, unprecedented, devastating and immediate impact on all segments of the air transport industry in its broadest sense: airlines, airports, air navigation service providers, ground-handling and cleaning companies, air transport equipment manufacturers and a multitude of other suppliers. The airline industry was competing in a difficult climate even before the attacks.

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No airline had been able to totally escape the effects of fuel prices that had risen considerably above forecasts, cutting profit margins even more than usual. Added to this, despite continued predictions of healthy growth for the industry, average growth across the board over the last 12 months was only approximately 0. 5 per cent. As a result, many carriers were experiencing hardships they would not have budgeted for and, in the days following the events, some airlines announced harsh measures to cope with the financial problems they were already facing.

Following the 11 September events, the air transport industry, already experiencing declining and even negative growth rates due to an economic slowdown, faced a sharp decline in air travel. It was reported that in the first four days after the event, domestic US bookings fell by 74 per cent, and bookings for the world excluding the United States were down by 19 per cent. 1 Owing to the “fear factor” some passengers have been cancelling holidays and business travellers are postponing business meetings or conducting them by video or teleconferencing.

Just after the attack, nation’s aviation system was shut down and produced a cash “burn rate’ for the industry in excess of $330 million per day for the duration of the stoppage. It has been estimated that just in the first week after the tragedy the US airline industry lost between $1 billion and $ 2 billion. The effects of 9/11 attacks continue to harm the industry significantly to this day. The fear of reoccurrence of 9/11 tragedy cause public avoids the air travel.

So we can clearly see the trend of decline in demand; the passenger traffic is still well below 2000 level. The new security checks, random searches and new airline ticket fees cause more individuals take road trips, which again prevent the recovery of the demand. The enactment of new security policies incurs additional cost. Declined passenger demand results combined with the increased cost lead the industry to face accumulated net losses. Net loss for 2001-03 will exceed net profit for 1995-2000.

As a result of the downturn in business, airlines have cut frequencies and routes. Swissair stopped operations for two days, stranding thousands of passengers around the world, and there were daily stories in world media regarding the imminent bankruptcy of major airlines. This situation, in addition to the “fear factor”, created a sense of unease and uncertainty among potential passengers. Passenger confidence in air transport is thus attacked from two sides, making the current crisis potentially much more damaging than earlier ones.

The total international traffic in terms of passenger-kilometres of the members of the International Air Transport Association (IATA) was unchanged in the period January to September 2001, compared to the same period in 2000. This suggests that the impact of the economic recession was already having an effect on traffic, since there was no growth following an increase in such traffic of almost 10 per cent for the whole of 2000. For just the month of September, however, total international passenger traffic fell by 17 per cent. 1

A similar story emerges from the statistics of the Association of European Airlines (AEA). Their members recorded an increase in total international passenger-kilometres of only 0. 6 per cent for January to August 2001, which was followed by a decline of 19 per cent between 10 September and 28 October compared to the same period in 2000. 2 The most recent forecast for world passenger-kilometre traffic shows a 3. 8 per cent decline in 2001 (compared with a 3 per cent drop after the Gulf War in 1991), and a 0. 5 per cent fall in 2002, before recovering with a 9. 1 per cent advance in 2003.

For the period January to July 2001, US major airline traffic for domestic routes was already marginally down on the same period of 2000 (–0. 6 per cent). For international routes, an increase was recorded overall of 3. 2 per cent, with the North Atlantic growing more slowly at 2 per cent. According to the Air Transport Association (ATA) of the United States, which accounts for around 95 per cent of the total US traffic, domestic revenue passenger miles (RPMs) decreased by 32. 5 per cent in September 2001 compared to the same month of 2000, while international RPMs decreased 30. 1 per cent.

The system-wide load factor (percentage of seating that is utilized) was 59 per cent in September, down from 69. 9 per cent a year earlier. The domestic load factor was 56. 2 per cent and the international load factor 66. 1 per cent. Recent estimates by aviation consulting firm Avitas show a reduction in US traffic of 6. 4 per cent for the full year 2001. 3 One of the most successful US carriers, Southwest Airlines, reported that load factors had risen steadily since they resumed flying on 14 September, and in the first two weeks of October they were only 5. 4 percentage points below the same period in 2000.

However, their yields were well below the previous year, and were 10-12 per cent below break-even. Continental’s traffic was down by 17 per cent in November 2001 compared to the same month in 2000, while their average revenue per passenger mile was down 19 per cent, with load factor only slightly lower. Traffic carried by US regional operators was varied, with some, such as Air Wisconsin and Atlantic Southeast, experiencing good growth for the July to September 2001 quarter, while others, such as Horizon and Midwest Express, were already suffering from the economic downturn.

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