Airline industry after 911

1
Airline industry after 9/11
2
What happened on 9/11 and later

• All airplanes in US were grounded for 3 days
• People did not want to fly (over 60 below the
  normal)
  
• Southwest cancelled 9000 flights
• Increased ticket refund

3
Healing Plan

• 5bil. immediate state cash grant support for all
  American airlines
  
• 10bil. loan support (Federal Aviation
  Administration)
  
• Aggressive pursuit for market share
• Ticket price promotion

4
The need to be proactive

• How to manage costs in order to make profit?
• Be a lower cost supplier
• Maintain a competitive position
• Costs and profits must be transparent
• The company should focus on both cash flow and
  profit generation
  

5
Ways to reduce costs

• Uniform fleet structures
• High-density seating
• Flexible work rules
• Increasing staff-passenger ratio
• Performance-related pay schemes
• Point-to-point service operating between
  lower-cost and less congested airports

6

• Low-fare airlines
• Simple brand
• Online and direct booking
• Simple ticket price structure and ticketless
  check-in
  
• Use of secondary, low charging airports (some
  exceptions)
  
• High aircraft utilization-quick gate turnaround
  time
  
• Do not interline point-to-point service
• Simple product-all additional services and
  facilities charged for, e.g. credit card
  bookings, late check-in, meals
  
• Focus on ancillary revenue generation-advertising
  (the plane as a billboard), onboard retailing
  (more common in Europe)
  
• Mainly short-haul focus
• Common fleet type acquired at very good rates

• Full fare Airline
• Complex brand- price service
• Mainly travel agents
• Complex fare structures
• Focus on Primary airports
• Lower utilization on short haul
• Interlining important part of service
• Complex integrated service products, e.g. ticket
  flexibility, business lounges, frequent flyer
  program
  
• Focus on primary product
• Short and long haul
• Mixed fleet

7

• Why are LFAs more resilient to market downturns
• More variable cost structure
• Lower breakeven load factor
• General trend that travellers migrate to LFAs

8
US LFAs ReactionSouthwest

• Fourth largest airline
• Decrease in passengers
• Lower load factor
• Bookings went rapidly down
• However, no schedule reduction stuff
  redundancies
  
• Deferred the delivery of new aircraft

9
US LFAs ReactionJetBlue

• Decrease in passengers, load factor bookings
• No job cuts
• Delayed the start of two new services
• Did not delay the delivery of new aircraft

10
US LFAs ReactionOthers

• Other companies used different methods more
  typical to full-fare airlines
  
• Wage concession (AirTran Airways, Frontier
  Airlines)
  
• Job cuts (Spirit Airlines, Vanguard Airlines)

11
Why did LFAs emerge faster?

• No aircraft debt strong balance sheets
• Consumers are more price sensitive in a period of
  recession
  
• Outsourcing

12
EU LFAs Reaction

• Not affected as much as the US carriers
• A 20 fall was estimated (Gulf War)
• All of the carriers adopted similar strategies
• Proactive ticket promotions
• Eschew forms of state aid
• Did not change their targets

13
EU LFAs ReactionRyanair

• Added capacity
• Cancelled only 16 of 1,800 scheduled flights the
  week after 11th September
  
• Seat promotions
• Have substantial cash resources
• Purchased 50 new aircraft

14
EU LFAs ReactioneasyJet

• Offered to fly passengers on Swissairs routes
  when Swissair ceased flights
  
• Offered extremely low prices
• Flew passengers who had a Swissair ticket

15
Is this model sustainable?

• 2 different LFA models
• Southwest, Ryanair based on cost reduction
• JetBlue, easyJet willing to forego
  cost-reduction opportunities in favor of better
  customer service

16
easyJet

• Fly from and to more expensive airports
• Acquired low-fare rival Go engaged in direct
  competition with Ryanair
  
• Fighting at two fronts

17
Debonair

• Mission to provide high quality service at
  competitive price
  
• Encouraged passengers to fly to one point, then
  to another - delays, customer dissatisfaction
  
• Bus stop principle higher expenses
• Uniform but not cost-efficient
  revenue-maximizing aircraft
  
• Could not decide on their brand
• No customer recognition

18
easyJet

• Uniform, cost-efficient revenue-maximizing
  aircraft
  
• Strong brand recognition
• Customer loyalty
• Target market business people who are willing
  to pay less but not the lowest possible price
  
• Use primary airports

19
easyJet

• Direct costs higher landing taxes
• Indirect costs congestion, increased turnaround
  time, lower daily utilization
  
• 2 options increase fares or accept reduced
  profits
  
• Focusing on business customers provides higher
  revenue per passenger
  
• So far successful

20
However

• Ryanair have 57 higher per unit profit
• Ryanair enjoy the lowest operating costs

21
Conclusion

• How did airline companies take advantage of the
  situation?
  
• Buying cheaper airplanes
• Some companies started offering what other
  companies ceased
  
• Some companies could see the potential in using
  market niches that other companies aborted or did
  not consider profitable