Chaos in the Skies- the Airline Industry Pre and Post 9/11

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Chaos in the skies - the airline industry pre and post 9/11

Case Study
Chaos in the skies- the airline industry pre and post 9/11

1. Introduction
The terrorist attack on the New York World Trade Center and the Pentagon on September 11, 2001, when civilian planes were turned into guided missiles flown by suicide bombers driven by religious fundamentalism and hatred for the United States not only seared themselves into the consciousness of the American people, but into the economic and business fabric of the country, and as a result, of the world. While the United States economy was slowing in the months before this tragic event, the aftermath of the bombings led the economy into a depression. The airline and travel industry were the worst hit of all industries. This is a review of the situation before and after 9/11 on industry of these attacks and an overview of responses both by government and on industry to the event.

2. Situation before 9/11 STEP
2.1 Social Factors
The demand for air transport was basically caused by a rising world GDP, an increasing world trade and investment liberalization of markets. Between 1990 and 2000 airlines benefited from an increasing number of tourist passengers from 450 million up to 700 million. The main reasons for people to fly were leisure and business trips. Travelling by plane was also a symbol of wealth and success. 2.2 Technological Factors

There has been made huge steps in airline technology, with the invention of more efficient engines the demand for long-distance flight could be satisfied. The internet opened a whole new and cheaper distribution channel for airlines. Furthermore airlines could improve their non-core services to get competitive advantages towards other airlines for example TV screens in the seats or faster boarding with new boarding systems. 2.3 Economical Factors

There was an increasing of US passengers travelling with planes of 160% between 1978 and 2000 (almost 660 million passengers) Through the year 2000 the operating costs for airlines went up constantly caused by higher fuel prices and rising labour costs furthermore the widening of the non-core services of airlines caused immense costs. Airlines reacted on that with reducing labour and cutting costs. Furthermore many airlines started out-sourcing their non-core services and activities in order to get back to the core-service and to save costs. 2.3.1 Competitive situation

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A basic impact on the competitive situation in the airline industry was 1978 US open markets policy which enabled competitors to enter the industry. In the further development of the industry several airlines merged in order to benefit from economies of scale. In 1984, 15 airlines had 90% of the US market in 1990 there were 8 airlines with a market share of 90%. The increasing competition among the airlines lowered the flight prices and airlines had to reduce costs. By the introduction of Hub and Spoke systems fix costs for airlines could be reduced and efficiency could be increased, also customers benefited from these networks. The development of the airline industry basically brought up two different models, the so called Low Cost Carriers who try to offer very low prices to their customers by eg. reducing on ground services and only offering point to point services. On the other hand there are the traditional Full Service Carriers providing the customer a broader range of services and opportunities. The Low Cost Carriers could win market share because of increasing customer price sensitivity, also business travel declined in 2001 41%. There was a trend of business travellers buying cheaper tickets and to renounce full services.

2.4 Political factors
Basically the industry was fragmented from the constraints of national and...
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