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Airline industry after 911

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All airplanes in US were grounded for 3 days. People did not want to fly (over 60% below the normal) ... Wage concession (AirTran Airways, Frontier Airlines) ... – PowerPoint PPT presentation

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Title: 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 Reaction Southwest
  • 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 Reaction JetBlue
  • 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 Reaction Others
  • 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 Reaction Ryanair
  • 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 Reaction easyJet
  • 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
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