Airline industry in the 2000s
The airline industry in the 2000s faced significant challenges, marked by a series of setbacks that impacted operations, profitability, and consumer experience. The aftermath of the September 11, 2001 terrorist attacks led to increased federal regulations on airport security, which, while necessary, resulted in higher operating costs and longer wait times for passengers. Despite carrying over 600 million passengers annually, growth stagnated, peaking in 2007 before declining due to various economic pressures, including soaring fuel prices that spiked in 2008. This financial strain forced several major airlines into bankruptcy and prompted a wave of mergers, as companies sought to stabilize their operations.
Labor disputes became increasingly common, with airlines reducing their workforce and negotiating pay cuts amidst fiscal turmoil. As consumer frustration grew due to perceived declines in customer service and lengthy security processes, the industry struggled to balance safety and efficiency. Notably, Southwest Airlines managed to thrive during this period by strategically locking in fuel prices, allowing it to offer competitive fares while remaining profitable. Overall, the 2000s were a tumultuous decade for the airline industry, characterized by a complex interplay of security concerns, economic challenges, and shifting consumer expectations.
Airline industry in the 2000s
The combination of rising costs and decreasing numbers of passengers led to significant changes to the airline industry during the 2000s
The US airline industry experienced several major setbacks during the 2000s, including terrorist attacks, increased operating costs, and labor disputes. Some airlines sought bankruptcy protection, while others negotiated mergers in the hopes of returning their companies to viability. By the end of the decade, most US airlines had significantly cut their labor force and decreased their passenger capacity in attempts to regain financial stability.
The 2000s were a difficult decade for the airline industry. US airlines carried approximately 665 million passengers domestically and internationally in 2000. By 2009, that number had reached only 703 million—a decrease of 60 million passengers from its peak in 2007—and growth was much slower than anticipated. The terrorist attacks of September 11, 2001, along with several other attempted terrorist acts, led to tighter federal regulation of airport security procedures and increased security costs. Skyrocketing fuel costs further harmed the airlines’ financial stability, leading to layoffs and labor disputes that threatened to drive several major airlines into bankruptcy before the end of the decade.
Terrorism and Security
On September 11, 2001, nineteen terrorists hijacked four airplanes and flew them into the World Trade Center in New York City and the Pentagon in Washington, DC, killing thousands of people. In response to these attacks, Congress passed the Aviation and Transportation Security Act on November 19, 2001, which established the federal Transportation Security Administration (TSA) within the Department of Transportation. The TSA assumed responsibility for passenger airline security from the Federal Aviation Administration (FAA). When the Homeland Security Act was passed by Congress in November 2002, the TSA was moved into the newly formed Department of Homeland Security. The TSA became responsible for screening all passengers and carry-on baggage before boarding the plane, screening checked baggage and cargo for hazardous materials, cross-checking passenger lists with a terrorist watch “no-fly” list, and conducting background checks on millions of employees in the transportation industry.
In December 2001, another terrorist named Richard Reid attempted to detonate explosives hidden in his sneakers while on an American Airlines flight from Paris, France, to Miami, Florida. Passengers and crew members stopped him, but the attempt led to a new TSA-imposed security requirement that all passengers remove their shoes for X-ray inspection prior to boarding the plane. The TSA enacted further restrictions on carrying liquids through security checkpoints in August 2006, following the interception of a terrorist plot to detonate explosive devices on ten planes bound for the United States from the United Kingdom.
While some credit these additional precautions with preventing further terrorist attacks, others criticize the measures for causing significant delays at airport check-in and security, mistaken-identity issues regarding the no-fly list, and civil rights violations caused by racial profiling.
Decreased Ridership and Increased Operating Costs
These high-profile attacks caused a noticeable decrease in ridership during the months that followed; it took nearly three years to return to normal levels following September 11, 2001. Many airlines struggled to maintain profitability while selling fewer tickets, especially since the new security requirements were costly to implement. Several major airlines, including US Airways (2002–3 and 2004–5), United Airlines (2002–6), Northwest Airlines (2005–7) and Delta Airlines (2005–7), filed for bankruptcy protection while they restructured their companies in attempt to regain profitability. This period also saw several mergers between major US airlines, including US Airways and America West Airlines in 2005, and Northwest Airlines and Delta Airlines in 2008.
Many consumers expressed frustration with airline travel during this time: Increased security measures combined with staffing cuts often led to long lines at ticket counters and security checkpoints. Travelers were also frustrated with the perceived lack of customer service. Nonetheless, US airlines continued to carry more than 600 million passengers annually throughout the decade.
Unfortunately, as the industry struggled to recover, skyrocketing fuel costs further damaged profitability. In 2005, Hurricane Katrina dramatically reduced the oil refinement capacity of the United States, while the ongoing wars in the Middle East and political tension with Venezuela reduced oil supplies worldwide. By 2008, financial market speculators were actively trading options for oil, which further drove up the price: A barrel of crude oil that sold for $20 to $40 per barrel at the beginning of the decade spiked to a high of over $147 in July 2008, before crashing back down to $40 only a few months later.
This enormous increase in fuel cost drove many smaller regional airlines out of business and led to continued financial struggles for larger carriers. Southwest Airlines emerged as a surprising winner in this debacle: The airline had locked in its fuel purchase price, and Southwest’s risky bet that fuel costs would continue to rise paid off. Because Southwest’s fuel costs were less than half that of other airlines, it was one of the few airlines to post a profit in 2008 while still offering bargain fares. This competitive advantage helped the airline gain significant market share.
Labor Disputes
Unsurprisingly, labor disputes arose amid the financial turmoil. Many airlines reduced their workforce, and demanded pay cuts and benefit reductions from their remaining employees. Delta Airlines faced off with its pilots in 2005, when it demanded concessions in pay and benefit in an unsuccessful attempt to avoid bankruptcy. A strike was narrowly avoided with the help of the bankruptcy court. In August 2005, the mechanics for Northwest Airlines went on strike due to difficulties with contract negotiations.
Impact
The combination of terrorist threats, increased operating costs, and labor difficulties left many airlines struggling financially throughout the 2000s. Tickets prices increased, but consumer perception of the quality of airline customer service declined as people became frustrated with long wait times due to increased security measures, additional baggage restrictions, and decreased staffing levels. While the industry did experience growth in total annual ridership over the course of the decade, that growth was significantly smaller than expected, and financial problems led to several bankruptcies and mergers in order to keep the companies afloat.
Bibliography
Bethune, Gordon. From Worst to First: Behind the Scenes of Continental’s Remarkable Comeback. New York: Wiley, 1998. Print. Examines how Continental Airlines adjusted its business model in the 1990s and reviews the state of the airline industry at the beginning of the 2000s.
Pae, Peter. “Hedge on Fuel Prices Pays Off.” Los Angeles Times. Los Angeles Times, 20 May 2008. Web. 29 Nov. 2012. Describes the fuel hedging efforts undertaken by Southwest Airlines during the mid-2000s.
Shaw, Stephen. Airline Marketing and Management. Burlington: Ashgate, 2011. Print. Offers an overview of the airline industry from a marketing perspective.
Transportation Security Administration. “About TSA.” Transportation Security Administration. Department of Homeland Security, n.d. Web. 29 Nov. 2012. Provides an overview of the history and responsibilities of the TSA.
Wensveen, John G. Air Transportation: A Management Perspective. Burlington: Ashgate, 2011. Print. Explores the airline industry from the perspective of corporate managers.