The Impacts of September 11, 2001 on the Aviation Industry's Marketing Mix

Abstract

This paper discusses the impacts of the September 11, 2001 terrorist attacks on the aviation industry. Specifically, how aviation industry members were forced to alter their marketing mix in response to the events. The four "P's" of marketing were all modified. The airlines had to change their product (route structures) and their prices. They also had to change their promotion tactics to ease the customer's "fear factor". Lastly they had to alter the means of delivering their product to the consumer due to enhance security measures (place).

September 11, 2001 will always be considered a turning point in the history of America. The events of 11 September 2001 were unlike any other shock experienced in the history of civil aviation. They have had a unique, unprecedented, devastating and immediate impact on all segments of the air transport industry in its broadest sense: airlines, airports, air navigation service providers, ground-handling and cleaning companies, air transport equipment manufacturers and a multitude of other suppliers. The airline industry was competing in a difficult climate even before the attacks. No airline had been able to totally escape the effects of fuel prices that had risen considerably above forecasts, cutting profit margins even more than usual. Added to this, despite continued predictions of healthy growth for the industry, average growth across the board over the last 12 months was only about 0.5 percent. As a result, many carriers were experiencing hardships they would not have budgeted for and, in the days following the events, some airlines announced harsh measures to cope with the financial problems they were already facing. Following the September 11th events, the air transport industry, already experiencing declining and even negative growth rates due to an economic slowdown, faced a sharp decline in air travel. It was reported that in the first four days after the event, domestic US bookings fell by 74 percent, and bookings for the world excluding the United States were down 19 percent. Owing to the "fear factor" some passengers canceled vacations and business travelers postponed business meetings or conducted them by video or teleconferencing.

Just after the attack, nation's aviation system was shut down and produced a cash "burn rate" for the industry in excess of $330 million per day for the during the stoppage. It has been estimated that just in the first week after the tragedy the US airline industry lost between $1 billion and $ 2 billion. The effects of the 9/11 attacks continue to harm the industry significantly to this day. The fear of recurrence

of the 9/11 tragedy causes the public to avoid air travel. So we can clearly see the trend of decline in demand; the passenger traffic is still well below 2000 level. The new security checks, random searches and new airline ticket fees cause more individuals take road trips, which again prevent the recovery of the demand. The enactment of new security policies incurs additional cost. Declined passenger demand combined with the increased cost leads the industry to face accumulated net losses. Net loss for 2001-03 exceeded net profit for 1995-2000.

As a result of the downturn in business, airlines have cut frequencies and routes. Swissair stopped operations for two days, stranding thousands of passengers around the world, and there were daily stories in world media regarding the imminent bankruptcy of major airlines. This situation, in addition to the "fear factor", created a sense of unease and uncertainty among potential passengers. Passenger confidence in air transport is thus attacked from two sides, making the current crisis potentially much more damaging than earlier ones.

Owing to regulatory and national considerations, it is through alliances that the aviation industry has so far responded to changing needs of customers and forces of globalization. One of the key questions is how alliances will evolve following the 11 September events. Although alliances offer the benefits of bigger networks, they create uncertainties for investment decisions, entail transaction costs, and impose other limitations that could be overcome by the full integration that is possible in other industries. Cooperation within alliances poses several challenges to managers: the size of the alliance, the need to intensify cooperation and the harmonization and standardization of common processes, and the search for synergies to reduce costs. However, in times of crisis, alliances do not necessarily prevent stiff competition between the partners. At present, five alliances Ð'- One World, Star, Wings, Sky Team and Qualiflyer stand out as the core groupings around which other airlines with strong regional networks will come together to form worldwide networks and can be described as global alliances. But they remain fragile creations subject to competing attractions and economic forces. Over the years, several companies have switched from one alliance to another. Austrian Airlines, for example, moved from the Qualiflyer to the Star alliance. Air France has recently floated the idea of creating a Mediterranean alliance with Alitalia and Iberia. To make this three-way deal possible, Iberia would have to leave the OneWorld alliance.

Airlines took the various short-term measures that have been described above, but few changed their long term strategies. The network carriers did cut out some unprofitable routes, and reduced frequencies on others. The 11 September events provided an important catalyst for other such measures like grounding older aircraft and reducing labor costs. In addition to these measures, airlines also cut all non-essential capital expenditure. Investment in aircraft already contracted for had to be paid in most cases, but investing in other airlines was not considered possible in the short term.

The most common response by airline companies to the crisis has been to freeze recruitment. Other cost-cutting measures designed to avoid laying off core staff include the non-renewal of temporary contracts, probationary staff not being transferred to full-time contracts, greater temporal flexibility such as shorter working time, part-time working and work sharing, pay cuts for management, pay freezes for airline staff of varying duration, pay cuts for non-managerial staff and voluntary furloughs (Turnbull, Harvey 2001).

Some differences were evident in Europe, for example, in the responses of British Airways and KLM, which both discounted air fares, as compared with Air France, which generally maintained fares, frequencies and services, and took a hit on its load factor. The first two carriers eliminated some unprofitable routes, and reduced frequencies