The Impact of September 11, 2001 On The Airline Economy - Essay Example

How September 11, 2001 has Affected the Airline Economy: A Critical Review How September 11, 2001 has Affected the Airline Economy: ACritical Review The September 11th terrorist attack on the United States, which took place in the year 2001, has left everlasting and devastating effects on the entire world. Remembered as 'the day the world changed', also referred to as 9/11, were a series of coordinated terrorist attacks upon the United States of America which were carried out on the morning of Tuesday, September 11, 2001. Hijackers took control of four U.S. domestic commercial airliners: two of which were crashed into the World Trade Center in Manhattan, New York City; one of which crashed into the U.S. Department of Defense headquarters, the Pentagon, in Arlington County, Virginia; and the fourth, which crashed into a rural field in Somerset County, Pennsylvania. This series of events was perhaps one of the most unforgettable in all of the United States' history, and certainly one of the most devastating. In order to come to a clearer and more knowledgeable viewpoint on this subject matter, the following questions must be addressed: 1. What are some main points of September 11th 2. How has September 11th affected the airline economy By thoroughly discussing these questions, as well as relevant and concise related topics, we can come to a more understanding and intellectual viewpoint on this subject of interest. The aim of this paper is to discuss all of these elements, while especially making it understood how the airline economy has been affected by this event; from people being scared to fly, to airlines cutting routes, to the leading of some airlines actually going out of business. This is what will be dissertated in the following. What are Some Main Points of September 11th The hijackers who carried out the terrorist attacks of September 11th were connected to al-Qaeda, which is an Islamic terrorist group led by Osama bin Laden. Initially, Bin Laden had denied responsibility for the attacks, but eventually he claimed direct responsibility for orchestrating the attacks. (CBC News, 2004). It has been said that the hijackers apparently took control of the aircrafts by using box-cutter knives; bomb threats were also made on three out of the four hijacked planes. As an end result, there were 2,986 fatalities. How has September 11th Affected the Airline Economy The terrorist attacks of September 11th resulted in short-term and long-term disruption of economic activity in many ways. This disruption was especially severe in regards to the United States' airlines. The United States' airline industry was already in a weak financial position before the attacks and were "with rising debt ratios and falling returns on investment." (Looney, 2002: 1(6)). Even to the present day airline passenger traffic has apparently remained below normal, "100,000 layoffs have been announced and employment in October and November fell by 81,000 (almost 8 percent)." (Looney, 2002: 1(6)). In the most simplistic terms, the United States' airline sector has lost around 20 percent of its overall relative value since September 11th. The attacks had a significant economic impact on the United States and world markets. Many of the major local airline carriers have permanently cancelled certain destinations, and reduced the number of flights operated. Even hotels in locales such as Egypt, Jordan, Tunisia, Morocco and Dubai reported a significant drop in occupancy rates. Tourism in New York City plummeted after the attacks of 9/11, causing massive losses in a sector which employed 280,000 people and generated $25 billion per year. "In the week following the attack, hotel occupancy fell below 40 percent, and 3,000 employees were laid off." ("Wikipedia", 2006). The New York City projected budget deficit for the 2003 fiscal year which begins July 2002 ballooned from $2-$2.5 billion to approximately $4 billion, "though most direct expenses related to the rescue and recovery effort are to be covered by the expected $40 billion in federal aid." ("Wikipedia", 2006). While many have been affected by the events of 9/11, "the airline industry has been one of the most seriously impacted." (Walker, 2001). There are many significant reasons for this, one of the most major being that people are simply too afraid to fly. After such a destructively traumatic and horrifying experience, who wouldn't be a little frightened to get back on any type of aircraft Although this situation is pretty much unavoidable, it is understandable. The difference in people's attitudes in regards to flying before 9/11 compared to after, however, is astounding - and economically destructive to the airline economy. "The temporary shutdown of national air traffic - and the public's understandable reluctance to take to the skies again after the attacks - sent the airlines into free-fall." (Wright, 2001). Another economic downfall for the airline economy is the fact that a number of airlines have actually gone out of business, due to such great financial loss. Between 1990 and 1992, major U.S. carriers lost about $10 billion. Only one major airline did not report any losses. Three of the major carriers - Braniff, Eastern, and Pan Am - went out of business and three others - TWA, Northwest, and Continental - entered bankruptcy proceedings. Most of the airlines offered shockingly low prices in hopes of gaining more customers, but for the most part the offers worked to no avail. Airlines responded with a number of cost-cutting measures. Most reduced their flight schedules, slashed advertising budgets, cut back or eliminated meal service and offered substantial discounts on coach tickets. The most drastic measure has been substantial layoffs. "As of late October, airlines had announced their intention to lay off or furlough about 100,000 U.S. workers. And while Americans are beginning to fly again, air traffic is still down about 30 percent." (Wright, 2001). The easiest and most proficient way of truly understanding the economic loss the airline industry suffered, we must take a closer look at a few of the most major airlines in particular. Texas Air had a major stake in this crisis. The company lost about $1 billion in September alone, and in October American planes were flying about 60 percent full, "compared to 70 percent in October 2000 - and the 60 percent 'load factor' was registered after a 20 percent reduction in the airline's flight schedule." (Wright, 2001). Continental Airlines found itself in a relative position to Texas Air, and in 2001 they had plans to eliminate about 12,000 staff positions, with about 3,000 of the cut coming from the Houston area. Dallas' Southwest Airlines is unique in that they actually avoiding laying off or furloughing any of their employees. In 1992, the United States' Congress established the National Commission to Promote a Strong and Competitive Airline Industry; this involved the commission making recommendations concerning FAA's structure, the airline industry's financial health, and foreign ownership limits. Immediately after the events of 9/11, "Congress cleared a generous $40 billion emergency relief package, the Fed pumped liquidity into the system to support the markets and reduced interest rates by 50 basis points or half a percentage point, and President Bush persuaded Congress into working out an emergency airline aid package, consisting of $5 billion in cash aid and $10 billion in loan guarantees, to compensate airlines for the losses they had suffered and would suffer." (Chandrasekhar, 2001: 18(20)). Unfortunately the airline crunch has demonstrated the power of economic 'ripple effects'. "The elimination of meal service from many flights hit the airline catering industry hardwhileairport shuttle services are hurting, too. Shuttle companies laid off 81 employees at D/FW and another 26 at Austin-Bergstrom International in the wake of the disaster." (Wright, 2001). The September 11th attacks are easily among the most significant events to have occurred so far in the 20th century, both in terms of the profound political, psychological, and economic effects that followed in the United States, as well as in many other parts of the world. Nothing will ever be quite the same after September 11, 2001. Even far into the future, long after the time of these tragic events, discussions on global and national developments are likely to be dominated by comparative narratives on what exactly held before the events of that day and how things changed thereafter. The events of 9/11 accelerated and aggravated already evident negative financial trends in the airline industry. The terrorist attacks exacted a terrible toll not only in human lives but also on the nation's economic vitality, especially in regards to the airline industry. References Azzam, H. T. (2002, September 8). On the first anniversary of Sept. 11 - economic consequences and political repercussions. Jordan Times. CBC News. (2004). Bin Laden Claims Responsibility for 9/11. Retrieved April 10, 2006, from http://www.cbc.ca/story/world/national/2004/10/29/binladen_message041029.html Chandrasekhar, C. P. (2001). The economic aftermath. India's National Magazine, 18(20). Fox News. (2004). Bin Laden Claims Responsibility for 9/11. Retrieved April 10, 2006, from http://www.foxnews.com/story/0,2933,137095,00.html Looney, R. (2002). Economic Costs to the United States Stemming From the 9/11 Attacks. Strategic Insights, 1(6). Walker, D. M. (2001). State of the U.S. Commercial Airline Industry and Possible Issues for Congressional Consideration. Retrieved April 10, 2006, from http://www.gao.gov/cghome/iac1128.htm "Wikipedia". (2006). September 11, 2001 Attacks. Retrieved April 10, 2006, from http://en.wikipedia.org/wiki/September_11,_2001_attacks Wright, B. (2001). Slump or Bump. Retrieved April 10, 2006, from http://www.window.state.tx.us/comptrol/fnotes/fn0112/slump.html Read More