9/11 changed airline industry forever

AFX, Sept 3 – No other industry was devastated by the Sept. 11 attacks quite like the U.S. airlines.

Now — after nearly $40 billion in losses, bankruptcies at at least 10 U.S. airlines and the disappearance of more than 150,000 jobs — it is finally bouncing back. In many ways it may even be in better shape than before, thanks to federal government help and aggressive cost-cutting achieved in the wake of the disaster.

Although still plagued by high fuel prices and debt levels, "five years later what we have is a much different industry, and I think a stronger one in some sense," said US Airways CEO Douglas Parker.

Despite the likelihood that planes remain top targets among terrorists — look no further than the recent discovery of a London-based plot to blow up trans-Atlantic flights — the threat doesn’t seem to have hurt the demand for air travel. And traffic has rebounded to near-2001 levels even though flying is, in Parker’s words, "less easy" than it used to be.

Tighter security means passengers must spend more time inside airports and be extra careful about how they pack. Planes are jam-packed because of significant fleet reductions, and in-flight amenities are scarce: blankets, pillows and free meals are a thing of the past.

"The ‘hassle factor’ is still in play," said frequent-flier Pat Silverman-Rosson of Dallas, using a phrase the industry and media used after the attacks to summarize the new inconveniences associated with air travel.

On a positive note, Silverman-Rosson said it is easier these days to find bargain fares. Analysts attribute this to the phenomenal growth of low-cost carriers such as Southwest Airlines Co. and JetBlue Airways Corp., whose efficient operations gave them a huge advantage at a time when rivals were on the verge of collapse.

Indeed, the airline industry at large was in bad shape even before the Sept. 11 attacks, suffering from a dropoff in business travel spending because of the dot-com bust and the weakening U.S. economy.

The post-Sept. 11 slump in travel exposed just how inefficient most airline operations had become — problems that were masked by the very low fuel prices of the late 1990s and boundless corporate travel budgets during the dot-com boom.

"A big part of the last several years was about survival, getting through an unprecedented drop in revenue and really wrenching a lot of fixed costs out of the system at the same time that fuel prices were going through the roof," said John Heimlich, chief economist at the Air Transport Association.

"The fact that we’re making money today at $70 (a barrel) oil says more to me than anything else about how far this industry has come," Heimlich said.

The industry hasn’t turned itself around all alone. Congress and the Bush administration lent a large helping hand after Sept. 11 in the form of a $15 billion package of cash and loan guarantees. And the government took over prime responsibility for airport security when it created the Transportation Security Administration, a division of the Department of Homeland Security that employs 43,000 and collects $2.50 on every leg of every trip fliers take.

Carriers also used force majeure clauses and the threat of bankruptcy as powerful tools to lay off workers, rewrite labor contracts, cancel aircraft orders and outsource maintenance, catering and others services.

Still, these measures weren’t enough to prevent Chapter 11 filings by Delta Air Lines Inc., Northwest Airlines Corp., UAL Corp.’s United Airlines and (on two occasions) US Airways Corp. And several small airlines, including FLYi Inc.’s Independence Air, folded up entirely.

In essence, what the industry achieved over the past five years, analysts say, was a much-needed downsizing. The trend was helped along by the 2005 merger between US Airways and America West Holdings Corp., and analysts say more consolidation may be needed in the years ahead.

There are 155,000 fewer full-time employees industrywide today, compared with August 2001 — a decrease of almost 30 percent. And over the past five years, the nation’s six largest airlines took 816 planes out of service — a 23 percent reduction that is beginning to pay off as full flights make it easier for carriers to raise fares.

Yet while fares have been on an upswing lately, they are still below 2001 levels, on average, and that has helped to stimulate demand. More importantly, an increasing percentage of seats filled per-flight — U.S. carriers reported a so-called load factor of 86 percent in July — lifted U.S. carriers in the April-June period to their first profitable quarter since 2000.

"The biggest difference between now and five years ago is the tremendous increase in productivity by the legacy carriers," said airline consultant Daniel Kasper of LECG in Cambridge, Mass.

"It would have happened in any event, but I don’t think it would have happened nearly as fast" had it not been for Sept. 11 and the ensuing financial crisis, Kasper said.

In contrast, the overhaul of aviation security might not have happened at all.

"This issue is taken far more seriously than it was before," said Rand Corp. terrorism and security expert Brian Jenkins.

There are still serious gaps in aviation security, particularly in the areas of cargo and an approach to passenger screening in the U.S. that critics say is weakened by civil liberties concerns.

"We have to engage in some sort of behavioral profiling. This has nothing to do with race or ethnicity," said Dennis Dolan, a Delta Air Lines captain and a top official at the Air Line Pilots Association. "Treating everyone equally is not a good use of resources."

Even from the vantage point of fliers the beefed-up security is not entirely welcomed.

Kevin Mitchell, who heads an advocacy group for business travelers in Radnor, Pa., said their biggest complaint is the unpredictability of airport screening lines, which force fliers to check in much earlier than they normally would.

"You have no idea what to expect at the airport, so that robs you of your productivity," Mitchell said.

Lance McLean of Atlanta is somewhat skeptical about how much safer air travel really is, though he appreciates some changes the industry has made to become more efficient, such as airport check-in kiosks and online check-in.

McLean said he does not necessarily long for the days before Sept. 11, which forever changed air travel.

"That wasn’t the age of innocence," he said. "You still had to throw your luggage through an X-ray machine. Now it’s just a longer line and you have to take your shoes off … whatever."