- The airline industry faced many challenges both before and after 9/11, including revenue drops, bankruptcies, and high leverage. - 9/11 had a devastating immediate impact, grounding all flights for 3 days and causing long-term declines in travel due to fears. - Both major airlines and low-cost carriers struggled in this new environment of high fuel costs, economic downturns, and less flying. The industry faced pressure to consolidate and restructure to improve long-term sustainability.

1. STRATEGIC PLANNING
A Case Study of Airline (Pre/Post 9/11 Attack)
1.0 EXECUTIVE SUMMARY
The airline industry is very cyclical, with second and third quarter highs due to
increase vacation travel. Currently, the industry is in its third year of stagnation with 21% to
24% revenue drop in 18 months. United US Airways, Air Canada, and Sebena Airlines are in
bankruptcy.
The industry has many long-standing problems. Airlines have little control over their
costs because of contracts with labour unions and the fact that suppliers mainly operate as
monopolies or oligopolies and they include: air manufacturers, fuel and airports.
Additionally, the industry also has many short-term problems. The current crisis is
the revenue line. Airline revenues have only dropped three times since 1938. They dropped
in 1982 (1%), 1991 (2%), and the multi-year drop now (20 times higher than ever before). To
combat this problem all airlines are taking measures to: reduce capacity; have more efficient
flight scheduling; lower employee costs (wages, overhead and benefits, productivity,
pensions). Ultimately, the lost industry revenue and increasing costs are going to have to be
made up in volume. For this reason break-even load factors are so high.
In general, the industry faces many risks. Risks includes: rapid growth of low cost
airlines, downward pressure on prices due to consumer availability to perfect pricing
information through the internet, changing government regulations, and uncontrollable costs
from monopolistic suppliers. Additionally, airlines are strongly affected by economic
conditions, such as increased insurance and the fear of flying since September 11th
, and the
overall strength of the economy.
However airline industry presents a different picture than it did prior to the events of
September 11, 200, with more passenger flying low-cost carries, fewer empty seats, and a
smaller workforce. The terrorist attack to “World Trade Centre” didn’t hit just these two
towers. The world has changed a lot after 9/11. Mainly, the international positioning of
countries in politic, economic and social situations has changed.
Apparently, after 9/11 the biggest change was seen at “Airline Industry” in business
sector. Everything has started exactly the same day with that tragedy. All airplanes at all
airports – mainly in US – were grounded for 3 days. Customer reactions were also fast.
People did want to fly and because of that, most of airlines had to cancel their flights.
Moreover, the airline industry is highly leveraged because it is so capital intensive.
The current industry make-up is not sustainable. Both major and low-fair airlines are
struggling. There are few airlines that are returning on capital on a sustainable long-term
basis. Companies are currently taking out long term debt with higher interest rates because
of higher leverage and lower credit ratings. It is widely believe, consolidation or exit of airlines
is inevitable in the industry.
2.0 INTRODUCTION
The airline industry has always been and continues to be the most fiercely
competitive business sector in all facets of its operations. Operating on paper thin margins
the drop in passenger traffic brought on by the events of September 11th
2001 has affected
domestic United States airlines as well as all global carriers. The events of that day have
caused governmental intervention in the form of loan guarantees, compensation for terrorist
attack losses, as well as insurance related to war risk (Shane, 2003). The Associate Deputy
Secretary of Transportation stated that the industry is in its “...worse financial crisis...” (Shane
2003), since the industry was deregulated in 1978. It is important to understand that two
differing types of airline carriers exist. The majors refer to airlines earning revenues in excess
of $1 billion USD annually and generally they provide national as well as international
service. These airlines cater to the business class customers and passengers who either
expect or desire full in flight services such as meals and related amenities. American Airlines,
Delta Airlines, United Airlines, US Airways, Continental Airlines and Northwest Airways fit
these designations (Mayer, 2002). The discount air carriers have changed the face of the
airline industry with their no frills, low-cost airfares and have put pressure on the majors in
terms of eroding their market share.

2. The preceding battle between discount carriers has further exacerbated the majors
thin operating margins and has resulted in Delta, Continental, Northwest, United and US
Airways (Beck, 2005) filling for protection under chapter 11 of the United States Bankruptcy
Laws while they restructure and renegotiate union contracts and credit agreements. United
States Senate Commerce Committee Chairman John McCain has stated that the United
State government should be “...reluctant to do anything that might keep inefficient business
afloat” (Shane, 2003). This is the climate in which the subject airline, American Airline
operates.
In chaotic situations like 9/11, there has been a room to gain highly competitive
advantage, preferably tighten security checks and reducing the cost of flight. For example,
Airlines preferred to buy cheaper airlines. The likes of Ryan air purchased 50 new aircrafts,
adding to their capacity. They cancelled only 16 of the 1800 scheduled flights the week after.
They did some seat promotions. Also Southwest Airlines in 2002 faced a serious important
management decisions after the 9/11 tragedy in order to continue the record breaking
company growth that Southwest had experienced since the 1970’s.
The drive for lower operational costs and increased efficiency has forced many
companies of the world to turn towards merger and acquisition. However, even then when
companies realize that cost cuts cannot be born out of “corporate marriages”. Instead a new
trend in strategic management emerged to achieve similar objectives – forming alliances.
Among the industries, alliance and networking are dominant in the airlines industries with
North America securing the leadership position followed by European carriers. Both the
Canadian and US airlines industries account for a market approximately $4.5 billion and $5.5
billion respectively (Factsheet from West Jet Website 2005) offering widespread opportunities
for an airline to explore and exploit. The purpose of this report is to look at the airline industry
from the macro environment perspective using PESTEL acronym as well as the Porter’s five
forces framework to analyse the industry before and after 9/11 terrorist attack.
3.0 MACRO-ENVIRONMENTAL FACTORS—P.E.S.T.E.L & FIVE FORCES ANALYSIS
3.1 PESTEL ANALYSIS
POLITICAL AND LEGAL PERSPECTIVE
PRE 9/11
Operating in a cross border network of alliances and partnership, American airlines
like multinational companies are subject to international and national regulations in terms of
assignment of routes and destinations; international aviation regulations; partner’s legal
standing as well as local laws. These constraints not only leave little room for airlines to
operate in but are also the sources for its highly efficient value chain. From top management
to the suppliers and the customers everyone in the value chain has access and rights to legal
assistance. These constraints actually help in maintaining smooth operations and inducing
efficient network of various nations’ airlines (Pascual 2000).
Internationally, the renegotiation of bilateral agreements led to more freedom and
ultimately to the rise of alliance that had global reach. Alliances such as One World, Star
Alliance and Sky Team linked many large airlines around the world with, for example,
common frequent flyer benefits, lounge access and code-shared flights (Stockport, 2004).
Another aspect is industrial relations. Personnel in this airlines industry from pilots to
cabin crew to technicians everyone work in the capacity and provision given by the law
prevalent globally. For this reason, everyone is cognizant of their rights to legal aid if
required. Since most of the airline personnel in the world have associations and unions they
tend to have an upper hand over management. The management therefore has to comply
with their demands if it is within the capacity of the law. In the low-cost carrier (LCC) industry
however, this is rather difficult to comply with especially if the nature of the demand is
monetary such as salaries, benefits or sharing of profits which compromise profitability. For
this reason management try to avoid or refuse engaging in labour disputes as it is rather
difficult for low cost carriers such as Delta, Air Canada, West Jet and Air Tran to give in to
labour demands (www.businessteacher.org 2003).
Not only is this but the airlines also subject to strict safety, hygiene and efficient
regulations. Airlines that do not deliver services according to international standards do not
only lose out in the competition but are also subjected to aviation penalties. Hence, a crash

3. into the everglades by ValuJet could severely compromise its position from the legal and
political perspective as well as from the customers. (Ramage 2005).
POST 9/11
Apart from the above, ad hoc events like 9/11 and terrorist attacks in the US as well
as across the world have had great impacts on the airlines. Political war resulting in
emergencies not only affects the airline industry but also it consumers. This has directly
resulted in a catastrophic drop in business as well as personal air travel. The preceding along
with the following areas have impacted negatively on earnings as well as profitability among
the majors: pricing regulations; wage legislation and union requirements; deregulation policies
of 1978; and the increased emphasis on national and airport security. (Ito et al 2003).
Fearful consumers are not keen on travelling by air any more despite discounted
sales prices and premium services. Even if players restructure and revise strategies to lure
customers, it is rather difficult to convince a psychological fear. Thereabout late 2001,
President Bush endorsed into law the Aviation and Transportation Security Act that brought in
the appointment of 28,000 security screeners, as Federal employees. This legislative as
equally resulted into a controversial new security tax levied on tickets to assist boost for
additional security measures.Therefore, customers have only started to travel by air recently
with the assurance that airport security and airlines have taken precautions for preventing
such events from happening again. (Stockport 2004).
ECONOMIC PERSPECTIVE
PRE 9/11
One of the most important aspect that have greatly affected the world’s transportation
system is the high fuel prices. Rising fuel prices has increased jet fuel prices even more than
crude oil prices according to David Field of Airline Business (2005). Apart from taxes, experts
are of the opinion that jet fuel prices have become more costly than crude oil costs which has
greatly affected the bottom-lines for many airlines. According to Gary J. Stockport (2004) fuel
prices rose more than 50 percent from 1999 to 2000, which led to airline costs rising quite
rapidly through 2000.
Hurricane Katrina has not only increased the prices by manifolds but also been
responsible for the closure of many airlines. Delta Airlines, for example, which has been
barely floating above cost when increased fuel prices have forced it into bankruptcy (Hibbard
2005).
There was also demand for air transport, deriving from some final activity such as
business or leisure. The myriad drivers for this increased demand had been the rise of world
GDP; increasing world trade and investment; the liberalisation of markets, as well as growth
in the number of retirees. However, between 1990 and 2000, the global number of tourist
passengers increased from about 450 million to 700 millions. With roughly 55 percent
accounted to be for leisure which was a function of income and wealth (Stockport 2004).
POST 9/11
The overall economic climate in the US prior to the September 11 2001 called for a
mild recession and the airline industry was wrestling with discount carriers. The airline
climate forecast a slight contraction as a result of the reversionary climate which was
dramatically impacted by the event of 9/11 and the resulting economic aftermath: dramatic
slowdown of the economic growth rate; increase in fuel costs; balance of trade accounts;
inflationary and fluctuations of the dollars against the Euro and Yen (Ito et al 2003).
It has argued that 9/11 alone event cannot be held responsible for the down turn of
the industry. The airline industry, according to experts (Spartacus 2005) may have pave way
for mature transportation industry the world over but the fact remains that the industry has
been evolving for the worse over the past decades. New airlines emerged such as Pan
American, Pacific Southwest, and Air Inter etc. to impress upon regional airlines and take
over the market share and at the same time result in shut downs and high turnovers evidence
in the statistics for the year 2005 in which the airline industry is expected to post a total of $8
to 10 billion loss due to high fuel prices and lessened air travellers. Sparaco (2005) is of
opinion that US airline industry has not been a consistent or profitable industry due to low
revenues, economic downturns, inefficient players and oil crises that have greatly stressed on
the losses therein.

4. In the first four days after September 11, US domestic airline bookings fell by 74
percent and bookings in the rest of the world were down 19 percent. There was complete
shutdown of commercial aviation system. However, American had also shed over 30,000 jobs
to 2003 and decreased operating expenses by over 3.8 percent or US$804m, which was as a
result of cost saving implemented from late 2001 and 2002. There are some airlines such as
United Airlines that suffered from the highest costs and lowest productivity within the US
airline industry. United’s network coverage had also been reduced by 24 percent since 9/11.
(Stockport, 2004)
SOCIAL PERSPECTIVE
PRE 9/11
The backbone of the airline industry is people. Individuals in the management,
technical and crews all are responsible for undertaking the task of serving their customers
with the utmost care and excellence. These individuals are trained and tailored to the
industry’s needs before they are allowed to work. They need to meet certain standards of
service and technical knowledge designed to satisfy the customers. For this reason the
players invest millions of dollars to improve the knowledge of their workers. These costly
trainings are critical for the airlines’ success and allow them to achieve stakeholders and
shareholders targets. But when airlines such as West Jet, Air Tran, Delta and Air Canada are
low cost carries, they have a difficult time to gauge how much they should invest in their
people before they could reach the desired customer satisfaction and profit level (Flint 2004).
Traditionally airlines do not incorporate training programs for its people as the
majority of the companies cannot afford to or do not have the infrastructure to serve the
required training. Instead they turned to custom training program offered by third party
vendors in order to fulfil that need. Such tactics not only result in inappropriate and non-
desirable training but also the knowledge acquired is standardized and not different from the
industry. Hence, the airline industry had been characterized by low and redundant knowledge
workers that cost their companies a fortune (Flint 2004).
More so, many LCCs are behaving like the traditional airlines which cause them to
face problems. Instead of flying to secondary airport, which have a quicker turnaround time
and lower costs, and scheduling flights at odd hours, many are now serving primary
destinations and so have lower profitability because their aeroplanes stay on the ground for
longer. (Stockport, 2004)
POST 9/11
From the customer’s perspective, the airline industry in the recent years especially
after the events of 9/11 proves to be a source of fear. People are no longer willing to fly
airlines as they are fearful of the repetition of terrorist attacks. Others are of the opinion that
the quality and service that are delivered by the airlines locally are no longer commendable.
Instead they prefer to travel by road or train so the airlines industry has been subject to long
period of low traffic that proved to be detrimental to the company’s performance. Major
airlines turn towards national and regional customers to meet the desired traffic to achieve
profitability targets.( Hemmes 2003)
Customers are also fickle in this industry. One observes that though some of the
customers prefer not to pay extra for meals or special privileges on air nevertheless they do
like to have the extra edge that other airlines do not offer at the same cost. For example at
West Jet’s insertion of TVs for entertainment on its low cost carriers have earned it great
reviews from customers and critics alike (MacKlam, 2005).
Thus, the emphasis on September 11 throughout these varied analyses is due to the
sweeping impact that had on global event in all theatres. The social implications thus shaped
or amplified are as follows: increased layoffs impacting all income groups; sharp decrease in
lower and middle class travel (this means the corporate market had suffered as businesses
quickly cut back on travel spending by not willing to pay the price differential compared with
economy class); decline in airline related vacations destinations; negative impact of air travel
safety brought on by the event of 9/11; decrease in general airlines related travel plans by
consumers; low-fare travel stigma attitude shift to acceptable alternative (Mayer 2002).
TECHNOLOGICAL PERSPECTIVE

5. PRE 9/11
This factor is perhaps one of the most important and critical one in the airlines
industry as it is the source for business potential and customer satisfaction. Airlines in the US
and Canada alike invest in the aircrafts, pilots and information technological system to
improve efficiency in the long run. Air Canada for example uses only 737 next generation
planes while its competitors uses older planes which are fast being replaced by newer
aircrafts. (James 2005). According to Newman (2005) the newer the fleet the better the
service as it lessens maintenance, inventory, parts and training costs but at the same time
increase efficiency. Thus technological improvement plays a sustainable role by allowing
airlines to revive from losses.
Furthermore airlines have to focus on being online. For most of companies websites
represent customer and employee portals whereby the management can gauge the
performance of the company at a click of a button. West Jet and Air Canada for example
invest in websites that allow their employees to access internal information online at anytime
they want. Similarly, Air Canada has invested in creating a cost efficient network that allow
the company to operate its operations from online including consumer support system for
customers in North America and Europe (James 2005). The internet’s impact on business
and consumer purchasing habits heralded in a new age of information exchange which
changed the manner in which airline tickets are sold – Airline Sabre systems; decrease in
airline travel agencies; and introduction of internet airline ticket reservations and ticketing.
(James 2005).
POST 9/11
The aftermath event of 9/11 has effect on the technology innovations and deployment
of sophisticated IT infrastructure, which assist in modifying airline computer software to better
identify passengers who could pose a security risk. Advert to that is the discovery of bomb-
aided detectors and body scanning machinery using infra-red ray that helps screen
passenger thoroughly.( Stockport 2004).
More so, air travels likes Air Trans & Southwest has taken their technological
development a step further by investing in infrastructure building by improving its reservation
system and online check in system and printable boarding passes which reduce time and
increased efficiency in the booking and consumption process. This companies estimate that
in 2003, 56 percent of its customers used online booking, indicating that the potential for a
wholly online systematic process attract customers as it allows ease of access and minimize
client time wastage whenever they want to make a journey through airlines (“lowest of the
low” 2003). However, safety regulations began to hinder air travel’s passengers and some
companies quickly responded with these new technologies to help during the trying travel
times with heightened security regulations. (Flint 2005)
ENVIRONMENTAL PERSPECTIVE
PRE 9/11
There has been an increase in the oil price which account for high cost of airlines, more
so, labour costs has been on the increased which accounted between 25 percent and 40
percent of an airline’s revenue and 75 percent of its controllable costs. Labour prices had
been rising at a rate substantially above inflation.
Starting in the US, the cost cutting measures led to rationalisation of many route
structures. Additional efforts to increase efficiency saw the formation of hub-and-spoke
networks develop during the 1980s. There were noise level controls and low level of
environmental pollutions. (Stockport, 2004; Lott 2005)
POST 9/11
Travel patterns changed after 9/11. For example, the transatlantic market collapsed as
Britons decided to holiday closer to home. Traffic to North America from London’s three main
airports fell by more than a third whilst traffic to other faraway destinations served by Gatwick,
Heathrow and Stansted fell by 14 percent. Airlines such as BA and Virgin Atlantic, (which has
based most of their profit on long-haul flights), felt the pinch. (Stockport, 2004).Within the
highly fragmented European market, Sebena made history by becoming the first European
flat carrier to file for bankruptcy which threatened the loss of thousands of jobs. Sebena flights
were grounded amid chaotic scenes at Brussels airport and remained suspended for days.
(Stockport, 2004).

6. Alberto to the ad hoc event of 9/11 there was equally high risk of air pollution (from
the collapse of the building of world trade centre, pentagon and Pennsylvania), coupled with
high risk of failure of the airlines. September 11 had also adversely affected alliance. For
instance, United Airline’s ability to ‘funnel’ customers to its foreign partners and that ability
had been curtailed as united had scale back routes following the attacks. (Stockport, 2004).
3.2 PORTER’S FIVE FORCES
Michael Porter’s Five Forces model provides a framework to view the airline industry
from the perspective of five forces that influence it. (Quick MBA 2005):
COMPETITIVE RIVALRY
PRE 9/11
The central force of Porter’s model is internal rivalry within the industry. In case of
the airline industry, this is the most important force, especially since the market is completely
saturated. The competition was based on route structures, technology and price. As an
example the success of the Southwest airlines was transporting passengers over relatively
short distance at competitive airline rates. Use of hub-and-spoke networks to service the
market with fewer planes, fewer staff and more frequent service to provide customers a single
ticket and lower price which created a competitive advantage.(Stockport, 2004).
More so, the airline industry is unique in the sense that the overall competition and
profitability is dependent on competitive pricing which push below cost operations so that
there is industry wide losses. On the other hand, the industry is also focused on innovations
and non-price competition. Concentration in the number of airlines operating against each
other enables firms to combine market share through strategic alliances and leadership. For
example Delta Airline had previously been among the lead players.(Stockport, 2004).
However with the emergence of low cost and no-frill airlines, Air Trans, Air Canada
and West Jet have dominated the industry to distribute the market share for each of these
companies so that Delta no longer have a monopoly over others. Across the North America
region however, one can observe that the concentration of the industry is divided among full
service and low-cost carriers but within each of these industry segments monopoly and
duopoly are common. Diversity in competitors however does exist among players as groups
compete in terms of cost, services, fares, alliances or through route dominance. Air Tran and
Delta airlines for example compete against each other in terms of rates while West Jet and Air
Canada challenge each other on services through product differentiation. (Hibbard 2005).
POST 9/11
Large FSC focus upon staff cost reduction to survive in the industry since 30%
reduction of passengers introduced new security measures. The FSCs equally use business
class to subsidise the rest of their operations, but the net effect of 9/11 for the FSCs was that
people wanted to travel business class but they did not want to pay price differentials
compared with economy class. On the other hands, traditional airlines started crying into their
balance sheets and put up fares to deal with the predicted drop in revenue, whilst the LCCs
such as South West Airlines were still able to make profit. (Stockport, 2004).
According to Toby Nichol, Corporate Comm. Manager at Easy Jet, “...low cost
airlines launched, independently of each other, a ‘Let’s get flying again’ campaign and offered
cheap seat that lured customers wanting to travel with much lower prices. This they achieved
by expanding their markets to capture some elements of business travel. For example,
package holiday segments including weekend breaks as well as longer distance 5-7 hour
point to point routes (compared with their former 1-2 hour services). (Stockport,
2004).However, the aftermath of 9/11 as equally resulted generally in: slow market growth;
high fixed operating costs; low relative levels of product differentiation among the majors; in
road of the low-fare carriers in the changing perception of air travel; and shake out of the
industry in terms of bankruptcies and failure. For example United Airlines and US Airways
sought relief by filing for chapter 11 Bankruptcy. (Hibbard 2005).
THREAT OF SUBSTITUTE
PRE 9/11
Road transport, rail transport and ship transport exist air travel comes, but
passengers carefully selected the transport media according to their choice and purpose.

7. However there has been a significant structural change within the global airline industry for
many decades. For example, since the 1960s, there had been important ongoing
improvement in the efficiency of jet engines that allowed much longer routes to be served. As
newer and larger aircraft were introduced, air liners were forced to compete at an ever-
increasing pace. Several of the contributing factors to structural change include:
globalisation, deregulation, consolidation; technology advancements. Suffice to say, that
since the late 1970s deregulation of the air transport industry, there has been massive
increase in air travel. With US passenger travel increasing by over 160 percent from
approximately 250 million in 1978 to almost 660 million in 2000, since around 55 percent of
passenger air travel was for leisure. (Stockport, 2004).
POST 9/11
The above event of 9/11 has make air travel a nightmare for passengers. Therefore,
the long queues and check in times at major airports had increased passenger door-to-poor
travel time and influenced the not-to-fly decision. This resulted in some passengers seeking
alternatives such as video conferencing for business discussions, driving for distances less
than 500 miles, and using high-speed rail where available. However, there has been recent
fall in oil prices below $30 barrel and it is becoming increasingly cheaper to drive. The
distance that one is travelling is a large determinate on the mode of transportation they will
use. And as oil tense to decreases, more and more travellers will choose to drive to their
location instead of flying. (Stockport, 2004).
THREAT OF ENTRY
PRE 9/11
Traditionally, the high cost of entry in the airline industry reduced the threat of entry
by competitive companies. Typically, the business model for FSCs focused on networks and
product quality, and providing service to as many cities as possible, with high level of
frequency and inter-connectively, has raises the barrier of entrants. Coupled with traditional
airlines forming alliances (gaining economies of scope) with other airlines that utilised such
strategies as code sharing, block spacing and franchising. (Stockport, 2004).
Also, the respectable numbers of established airlines that have made up the industry
have a strong hold on airports hubs. These hubs are crucial to bring and taking customers to
and from airports. An entrant into the airline industry many not have these privileges which
would stall their business.(Stockport, 2004).
However, with the advent of LCCs, the structural changes within the industry had
seen the emergence of new business model for airlines. The LCCs focus upon the
management of costs and were successfully eroding the FSC’s market share with the
changes in patterns of passenger demand with what represented value for money fare,
providing simple point-to-point itineraries. Thus, the business model offered by low fare
carriers exploited the lower end segment of the market via price has provided a foundation for
the entry of Southwest, Jet Blue, America West and others (Ito et al, 2003).
More so, the 1978 US open market policy has also effectively removed barriers to
entry and enabled new competitors to enter the industry.(Stockport, 2004).
POST 9/11
Following 9/11, insurers withdrew liability coverage for war and terrorist attacks. New
legislation had to be introducing in the US and Europe and government had to assume
responsibility for war risk claims. When eventually insurers re-entered the market again, their
premiums rose between 200-500 percent.
More so, the insurance cost which previously accounted for some 1-2 percent of operating
costs, has increased to 2-5 percent. That is an increasing high premium for airlines, not to
mention, a new aircraft bought.(Stockport, 2004).
Amidst and albeit the outcome of US District Court Judge ruled that in favour of the
families of the people who had died in the terrorist attack, gave the go ahead to sue the airline
industry of negligence in failing to carry out the proper security checks that might deter the
hijackings, has lower the threat of new entrants to airline industry. Coupled with low
patronage of passengers as well as the potential threat to substitute as passengers were
seeking alternatives to avoid air travel.(Stockport, 2004).
BARGAINING POWER OF BUYERS

8. PRE 9/11
The deregulation, since 1978, which has brought freedom of will in terms of trading
methods in accordance with market demand and intensify increased competition from existing
and new entrants, has resulted in market concentration led by lower prices and thus eroded
the bottom line profitability of most airline companies has they were now forced to focus upon
reducing costs in order to arrest the price increases and maintain margins. This has
consequently strengthening the buyer bargaining power by effectively pulling the casual
traveller to frequent travellers and some classes of business travel for companies seeking to
cut costs. (Stockport, 2004).
POST 9/11
The checked in time increased. For example, the new check-in time for international
flights had increased to three hours from the previous two hours. The LCCs offered longer
distance with lower prices and this gave an opportunity to expand their market relatively to
lure some business travel and thus increased bargaining power of buyers (who intend to cut
back on travel spending).(Stockport 2004; Jonas 2004).
BARGAINING POWER OF SUPPLIERS
PRE 9/11
The bargaining power of supplier on the airline industry is high. Plant manufacturers
are the one who dictates the prices on the planes, which are overvalue because of the
scarcity of plane manufacturers. Only two manufactures in the airplane industry are Boeing
and Airbus. (Ramage 2005) These two suppliers enjoy the business of many airlines and
therefore can control the power between said airlines and themselves by setting their own
prices. For this reason, there isn’t a lot of cut throat competition among the suppliers. More
so, switching costs too high for any airline to switch to another provider since substitutes are
non-existent. Also, the likelihood of a supplier integrating vertically isn’t very likely – in other
words, one probably won’t’ see suppliers starting to offer flight service on top of building
airlines. And not to mention, the price of the oil is high. (Ramage 2005)
POST 9/11
There were decreases in the bargaining power of the supplier as the airline can
negotiate for more sophisticated airplanes due to security reasons. For example Boeing, it
was argued, could have designed a cockpit door that the hijackers could not break into. This
was lawsuit file up against Boeing, which potentially the cost for this could run into several
US$bns in claim (Stockport 2004).
4.0 RECOMMENDATIONS
There were however, better plans for disruptive events for 9/11 – which has called for
new security measures to be adopted-----
• First and foremost, the installation of metal detectors or bomb-aided detectors station
would be very important in this respect; especially detecting liquid substance that
could be used to react to chemical substance forming bomb that could trigger
explosion.
• The deployment of body scanners and of additional security personnel, such as
armed guards on flights and additional screeners in the intelligence agencies.
• The use of military policeman at the detector stations to serves deterrent to any
suspicious behaviours and to act as force to counterattack of any form of terroristic
attack/behaviour.
• The strengthening of the cockpit doors, in such a way that it is designed would be
very difficult for hijackers to break into.
• The significant of sharing information on sensitive criminal record of a potentially pose
risk terrorist attack from federal government to airlines so as to put any further attack
on security tracks.
• The deployment of federal air marshals on certain routes outside US that is quite
vulnerable for terrorist imminent plan for staging next surprising attack.
• The use of better and more sophisticate computer software that is fast track to trigger
alarm for potential identifiable passengers who could pose immense security risk, and

9. restriction of access to any park aircraft and adequate secure areas within airport
terminal.
• More so, the government could review the existing air safety regulations to stiffened
boarding measures so as to protect airline passenger.
• Updating airplane and airport employee identification credentials; as well as
conducting detailed employee background check so as to scrutinize any potential
terrorist in the cabin crew.
These measures might or might not be the optimal protection against terrorist attacks
on airlines. This is because of the bafflingly difficulty of uncertainty associated with such
attacks. For instance, the cost-benefit analysis of precautions is a reliable tool of economic
decision making only (in general – I will suggest an exception below) when not only the cost
of the precautions and the loss (cost) that will occur, if the event sought to prevented is
allowed to happen can be calculated, but also the probability of the event if the precautions
are not taken. For that second calculation is also necessary in order to estimate the expected
loss if the precautions are not taken. If the loss of the event occurs is $x, and the probability
that the event will occur unless precautions are taken to prevent it is .01, then, as a first
approximation one should spend up to $.01 x to prevent the event from occurring, but not
more. The question pose by economist is that there is optimal expenditure on preventing
terrorist attacks on airlines.
But what is the incremental probability of a successful terrorist attack on an airline if
the precautions instituted after 9/11 is withdraw? Although that is the most difficult question,
since there is also uncertainty about the loss should such an attempt succeed. Some
statisticians, and some famous economists of yore such as Frank Knight and John Maynard
Keynes, distinguish between calculable risk, as in .01 example above, and uncertainty, in the
sense of risk that cannot be calculated with any confidence. No one can say with any real
confidence what the probability of a successful attack in the next year on US airline
(specifically on the flight originating outside the United States, which seems the likeliest type
of terrorist attack) is, except that it is between 0 and 1, which is unhelpful (it is naive to base
an estimate of probability on frequency, that is, on past occurrences, if there is no reason to
believe that the future will be like the past). In fact not only most travellers but also the
airlines and the government think that the probability of a successful airline attack is much
closer to 0 than to 1; if they thought it was close to 1, there would be far more radical
precautionary measures taken and a sharp decline in demand for our travel.
Therefore, one might decide to place two or three guards on every international flight,
but it wouldn’t make any sense to place 10 guards on every flight; the incremental benefit
would be negligible. Similarly, maybe every security line in every international airports should
be equipped with a body scanner, but it wouldn’t make sense to equip every security line with
the two body scanners. The inability of the intelligence agencies to pool information
effectively will be costly to correct, but these are costs that have to be incurred anyway – to
protect the nation from a range of terrorist attack from airline.
5.0 CONCLUSION
From the above analysis it can be concluded that the airline industry has for a long
time been characterised by losses, economic vulnerabilities, customer dissatisfaction and the
airlines inability to secure growth rate. Depending on the nature of operations companies can
reverse these vulnerabilities by first identifying the key success factors and scanning the
environment regularly before it can come up with strategic planning. Identification of critical
success factors is the first step in entering the market with an advantage as it means the
company would be differentiating itself and creating a value chain – a key aspect for
differentiation. In the above analytical framework of airlines, some companies have been able
to secure success (such as LCCs – West Jet & Southwest) because their management have
been fast in adopting the above strategic approach. Whilst on the contrary airlines like United
Airline, Air Canada and Delta have not been so responsive to the environment which resulted
in the losses they have to incur. The analogy thus offers pretty much explanation that
whichever the condition prevalent in the industry, opportunities does not exist for prosperity
and profitability for all firms if they adopt strategic planning and management of its resources
and market.

10. REFERENCES
Leuffer, F. (2030). The Terrorist Premium in Oil Prices. Equity Research, Beal Sterns 25th
November, pp.103.
United States (2003). Airline Industry Metrics. Department of Transportation [online] retrieved
on 21 April 2010 from: <http://www.dot.gov/business.html>
United States (2003). Rising Breakeven Load Factors Threaten Airline Finances. Department
of Transportation. [online] retrieved on 18th
April 2010 from:
<http://www.dot.gov/business.html>
Hemme, D. (2003). Transportation & Logistics/Airlines. Prudential Equality Group Inc., pp.1-6.
David et al (2003) Northwest Airlines: The No-So Friendly Skies. Accounting 118, 8
December
UK Essay (2010). PEST, Porter’s Five Forces, Stakeholder and SWOT Analysis of American
Airlines. Business Essay: UK [online] retrieve on 15 April 2010 from:
http://www.ukessays.com/essays/business/swot-analysis-airline.php
Flint, P. (2004). Low Cost, But Not Cheap. Air Transports World. 41(1), pp.50-54.
Flint, D. (2005). After the Storm. Airline Business 21(10) pp.28
Flint, P. (2005). We’re Not Afraid of Anybody. Air Transport World 42(9) pp.63
Hibbard, J. (2005). The Sweet Smell of Chapter 11. Business Week, Iss 3955, pp.86
James, C. (2005). All Change at Last for Air Canada. Travel Weekly. Iss 1781: pp.32
Jonas, D. (2004). LCCs Setting The Pace of Carrier Competition. Business Travel News 21(9)
pp.24
Lott, S. (2005). Strong Revenue, Cost Control Deliver Air Canada Profit. Aviation Daily
361(25) pp.2
MacKlem, K. (2005). Pulling West Jet Out of its Drive. MacLean’s 118(40) pp.12

11. Newman, D. (2005). Analyst Interview: Canadian Transportation. The Wall Street
Transcription pp.1
Pascual, A. (2000). Can Air Tran Keep Climbing? ValuJet’s Successor is Thriving – For Now.
Business Week, Iss 3704, pp.102
Ramage, N. (2005). WestJet on the Fly. Marketing 110(22) pp.13
Sparaco, D. (2005). Endangered Species. Aviation Week & Space Technology 163(13) pp.47
Vu, U. (2005). Air Canada Union Irate Following Collection Agency Threat. Canadian HR
Reporter 18(1) pp.1
Ferriera, W. And Lyons, D. (2004). Competitive Repertoire Simplicity and Firm Performance:
The Moderating Role of Top Management Team Heterogeneity. Managerial and Decision
Economics 25 pp.317-327.