Airline Industry Still Struggling to Survive
China Daily | Sep. 11, 2006
Petrified passengers, draconian security checks and a severe crisis in confidence the September 11 attacks in the United States put airline companies through the wringer, forcing them restructure or fold under a mountain of debt.
"September 11 knocked the profitability out of our industry and it also accelerated change," said a spokesman for the International Air Transport Association (IATA), which represents about 260 airlines accounting for 95 per cent of scheduled international air traffic.
The industry was coasting along nicely with comfortable profits up until 2001, but that all changed instantly and radically when hijackers took four planes, slamming two into the World Trade Center in New York and another into the Pentagon in Washington.
The fourth jet ploughed into a field in Pennsylvania, apparently after passengers attempted to overwhelm the hijackers.
Air carriers have lost US$40 billion since that fateful day, including US$13 billion in 2001 alone, according to IATA figures.
The number of passengers plunged 2.9 per cent in 2001 after an increase of 9.6 per cent the previous year.
Airlines were obliged to adapt their fleets to strict new security measures, including armour-plated cockpits, baggage screening and tighter checkpoint controls, all of which costs the industry an extra US$5.6 billion per year, the IATA said.
And the attacks were just the start of a very turbulent ride for airlines as the wars in Afghanistan and Iraq and a deadly outbreak of the Severe Acute Respiratory Syndrome (SARS) virus continued to hammer an already battered industry.
And now the sector has to deal with yet another burden record high oil prices that have caused airlines' fuel bills to triple in three years to US$115 billion.
Only carriers with a solid worldwide network, well-balanced across the different continents have been able to fly through the storm, though few have emerged totally unscathed.
Most were forced to lay off huge numbers of workers, cut routes and introduce belt-tightening measures across the board just to survive. Since 2001, the industry has managed to cut spending by 10 per cent, fuel costs not included.Smaller or more fragile airlines however have not fared so well.
In Europe, Belgian airline Sabena folded in November 2001, Switzerland's national carrier of over 70 years Swissair imploded the following year, taking with it regional carriers Air Lib and Air Littoral in which Swissair owned a big stake.
US airlines, all heavily dependent on the domestic market, were particularly hard-hit as internal US flights plummeted after the attacks.
Air Canada, Delta Air Lines, Northwest, United Airlines and US Airways, all big players in the North American market, have all been pushed to the brink of bankruptcy during the past five years.
"In the United States, the companies used bankruptcy protection law, which freezes debt, to cut spending and adapt their fleet to market needs as the market was suffering from overcapacity," said Nicolas Loiret, an analyst with the credit insurance company Euler Hermes.
The skies have started to clear for those who have survived and the industry is expected to return a profit in 2007, thanks to reduced costs and a steady increase in passenger numbers since 2004.US airlines dragged their operating profit into the black in the first half of this year for the first time since 2000.
The sector is also less fragmented as airlines have actively sought out partnerships to boost their solidity and leave them less exposed.