An informal survey of Navigant’s major corporate customers found that travel activity was still down more than 30 percent from normal levels two weeks after the attacks, and would remain below normal for the next several weeks. “I don’t believe that the airline industry will ever return to its prior condition,” predicts Julius Maldutis, a longtime airline industry analyst at CIBC World Markets. “These are permanent long-term changes.”
And that’s devastating news for many of America’s carriers. As recently as May, the Air Transport Association projected a $1.5 billion profit for the industry this year. By the end of August, Wall Street was predicting losses of $3.5 billion. Now, the federal government figures the airlines could lose as much as $10.5 billion this year. “The airline industry was hurting before, and it was hurting pretty bad,” says Michael Steinberg, editor in chief of BizTrip.com. “This was kind of the straw that broke the camel’s back.”
Today, United Airlines confirmed reports that it warned employees in a letter that bankruptcy is a possibility if the travel outlook doesn’t improve. “Today, we are literally hemorrhaging money,” wrote United CEO James Goodwin. “Clearly this bleeding has to be stopped–and soon–or United will perish sometime next year.” Analysts say they’re worried about other airlines, as well, particularly those with relatively little cash on hand, including America West and US Airways. Those in the best shape: Southwest, Alaska, Delta and Northwest.
At the heart of the problem? A huge drop in business travel. While corporate flyers account for about 43 percent of passenger volume, they generate 65 to 70 percent of revenues and profits. Business-travel bookings had started to decline last fall when the economy slowed. To compensate, airlines tried fare hikes. By the spring of this year, business fares among major carriers had increased 11 times, or 70 percent, since 1999. But that only made the problem worse: business travel fell 41 percent in the first half of 2001 versus the same period last year, according to the Air Transport Association.
Now, business travel is down even farther. Of more than 200 corporate travel managers surveyed by the National Business Travel Association at the end of September, nearly 20 percent say it will take 10 months or longer for business travel to recover after the attacks. Frequent flyers who absolutely have to fly have switched to low-cost carriers. And sales of corporate jets and chartered flights have skyrocketed. Others are trying to replace face-to-face sessions with digital meetings. Deutsche Bank canceled plans to hold its annual Global High-Yield Conference in Phoenix, Ariz., this month. Instead, it hosted a virtual conference. The response far exceeded the company’s expectations. More than 2,500 investors participated in the conference over the Web or via conference call, with at least 80 companies making Web-cast presentations.
Business travelers who still take to the air question whether they’re getting their money’s worth anymore. Silverware is gone from first class, replaced with plastic knives and forks. First-class passengers are sometimes asked not to use the lavatory in their section, since it is next to the cockpit. And recent efforts to cut costs at airlines have reduced flights and added stops, and, some grumble, diminished service. Airline analysts say it’s not hard to imagine meals disappearing from even more flights, for instance, for both economic and security reasons–carts blocks the aisle and food–service contractors don’t always do adequate safety checks on employees.
With new security procedures in place, travelers can spend as much as two hours waiting in line just to get to the gate. That makes flying more time-consuming than driving between short distances. And while 14-day and 21-day advance ticket fares have dropped in the past month, last-minute fares remain so expensive that a growing number of executives are opting for similarly priced private chartered flights, which seem safer from hijackings. To cope, the nation’s major carriers have cut flights and jobs; at least 100,000 airline industry workers have been laid off in the weeks following the Sept. 11 attacks. Congress has authorized $5 billion in immediate assistance and another $10 billion in government-backed loans. But the carriers who need the money most aren’t in a strong enough financial position to qualify for the loans.
The holidays are the industry’s next big test. Will American fly home for Thanksgiving? Take a trip to the islands to celebrate the New Year? The answers might mean the difference between life and death for the nation’s biggest airlines.
