Strategic Management of the U.S. Airline Industry After 9-11 2001

POST-9/11 Management OF U.S. AIRLINE INDUSTRY

Strategic Management of the United States

Airline Industry after the 9/11/2001 Terrorist Attacks

Strategic Management of the United States

Airline Industry after the 9/11/2001 Terrorist Attacks

Airlines in the United States have a long, complicated history in terms of management strategy that includes alterations due to technological advances, bankruptcies, economic downturns, deregulation and even presidential intervention, but none of these forces had the power to both destroy and restructure the industry like the events of September 11, 2001.

The 9/11/01 attacks on the United States fundamentally altered the way the U.S. airline industry operated both publically and internally. One area that suffered significantly from these attacks, and brought about the need for major overhaul within the industry itself was strategic management strategies and practices within the airline industry in its entirety. The 9/11 attacks on America brought about the need for immediate change in these strategies, but the turnover from need to application proved rough and unprecedented, and was added to tremendously by the stress of the time at hand. In making the shift in management strategies and practices within the United States airline industry, airlines across the country were fundamentally changed by deregulation, competition, and the ever-lingering aftermath of the September terrorist attacks.

Pre-9/11 Management Strategies and Practices

As it is known throughout the business world, the significance of management strategy revolves around a corporation's ability to survive and grow by responding to environmental changes, and until 9/11, the U.S. airline industry had never seen environmental changes arise so abruptly. Prior to 9/11, airlines were seeing a steady decline in both yields and fares, particularly in early 2001, but had remained optimistic and able to maintain current management practices that had been in place for years (Goldschein, 2011, p.2). Before September 11, problems were beginning to materialize across the board for U.S. airlines. A meltdown began to unfold in the technology sector, and with this came the tightening of business budgets across the country. Business trips were postponed, conferences were cancelled, and passenger traffic began a steady decline (Besant, 2002, p.1). However, despite this decline in traffic and slight decline in revenue, seats were consistently being added to flights across the country in an effort to combat shifts in profit.

Airline giants such as United Airlines and Continental ruled the air in terms of profits and presence, and passengers continually received all the "standard" amenities of flying such as low costs for baggage and complimentary customer service features while in-flight that had remained in place in terms of operational strategy since the inception of air travel itself. Overall, the atmosphere in the United States airline industry in late summer 2001 was becoming one that was considered increasingly problematic despite the optimistic views held by management and staff. Airlines were continuing to spend at a rate that was hopeful of a regeneration of profits, but profits at that time were beginning to look bleak. Internal management within the airline industry began to brace for a continual and steady decline, but what they ultimately received was nearly unimaginable.

9/11 Management Chaos

The events of 9/11 brought swift and steady chaos into the airline industry, and internal management faced the struggles of keeping up with the changing environmental atmosphere within the industry that coincided with the initial impact of the first plane into the World Trade Center. Immediately, management in the U.S. airline industry made the decision to ground all aircrafts across North America, diverting all inbound U.S. traffic to Canada, which remained enacted for the next three days before airports began to reopen and management began to strategize for the airline industry's future operation.

What appeared within the industry was a total collapse in air traffic. For the first sixty days after September 11, scores of flights were cancelled due to lack of willingness of passengers, who were deterred by fears of further terrorist attacks and massive newly-implemented security delays (Besant, 2002, p.2). The few planes that did fly carried with them few passengers, and many advanced bookings were cancelled at a significant and steady rate.

In addition to the aforementioned issues at hand within the industry, management was forced to deal with the presence of insurance underwriters who quickly took the position that terrorist attacks feel outside many standard policies, which raised the prospect that airliners would be grounded due to lack of coverage, as airlines do not put uninsured planes in the air (Besant, 2002, p.2). Soon, pending transactions in terms of new planes and aircraft deliveries to airlines within the United States stood at a standstill, which placed airlines further into what appeared to be a black hole of debt that would certainly cripple the industry in its entirety.

An industry which only days before the attacks was dealing with massive downturns in profits, now had the additional hardship of dealing with massive carrying costs in terms of daily operations, salaries, and newly-implemented security screenings, all of which remained enacted despite the absence of corresponding revenues to finance such proceedings. Further, as airline payrolls represent a massive percentage of expenses, the potential directors' and officers' liabilities that threatened to accrue were overwhelming, often exceeding policy limits and further intensifying the pressures on airline management who were placed on the brink of further disaster (Belobaba, 2002, p.2).

In an industry in which aviation strategic management typically focuses on the scientific improvement of managerial practices in an effort to enhance an airline's financial bottom line, managers, who are depicted as rational actors within the industry found themselves at a crossroads in terms of how to make decisions for the airline industry's greater good in terms of profitability, as in the U.S. airline industry, entities that do not profit, do not survive. In terms of new management that would come into play, the idea of creating strategy that would be considered "a socially valuable technical function, normally acting in the general interest of workers, employers, customers, and citizens alike" became both necessary and exceedingly difficult in a post-9/11 framework (Alvesson and Karreman, 1992, p.1).

Deregulation

September 11, 2001 became the event that would become the proverbial "last straw" in launching the struggling U.S. airline industry -- which had over-expanded and over-spent in a competitive frenzy during the post-deregulation period -- into a full-blown mania (Fraher, 2011, p.14). In this post-9/11 world of industry uncertainty in which bankruptcies, mergers, outsourcing and furloughs, combined with increasing customer fees and decreasing customer service, many issues that arose in terms of management has largely been attributed to what critics argue was a twenty-three-year "incubation period" that began with airline deregulation (Turner, 1976, p.381). Turner is noted as one of the first researchers who evaluated organizational decision-making, noting disasters do not typically occur spontaneously, but instead incubate over a number of years until being ignited by a precipitating event (Fraher, 2011, p. 12).

Researcher and former pilot Amy Fraher notes that this "incubation period" in the U.S. airline industry began with the Airline Deregulation Act of 1978, in which disbanded the government-instituted Civil Aeronautics Board (CAB) and withdrew government control from the industry, which allowed airlines to now compete over routes, schedules, and fares in a free market (Allvine, Dixit, Sheth, and Uslay, 2007, p.10). Since its signing in 1978, the United States airline industry has long struggled to keep up with this new competition, and these struggles continued to be seen by many airlines, who struggled to stay relevant in what Fraher notes as the post-9/11 period originated with managerial decisions made during the first decades of deregulation when intense competition and unparalleled expansion required the extensive purchase of new airplanes and record hiring of employees at industry leading pay rates (Fraher, 2011, p.12).

After 9/11, safety and security regulation responsibilities were given to the newly-created Transportation Security Administration (TSA) which operated under the Department of Homeland Security. This body, which was created just months after 9/11 once again brought a government-sanctioned entity into airports regardless of past deregulation standards. In conjunction, this presence of this government-employed body, in September of 2001, Congress passed the Air Transportation Safety and System Stabilization act, which authorized payments of up to five billion dollars in assistance to reimburse airlines for the post-attack four-day total shutdown of air traffic and attributable losses through the end of 2011 (Cox and Smith, 2005, p.1). It also created and authorized the Air Transportation Stabilization Board (ATSB) to provide up to ten billion dollars in loan guarantees for airlines in need of emergency capital (Cox and Smith, 2005, p.1).

Airline managers had to now deal with the pressures of maintaining their own operational protocols and strategies that had been in operation for decades, adjusting these strategies to fit the post-9/11 landscape, and now allowing the government back into the industry in certain capacities despite deregulation. 9/11 brought with it the capacity for airlines to create the internal restructuring necessary with deregulation, with the additional presence of the government in newly-created aspects of security and national defense.

Fundamental Management Strategy Adjustments

In looking at the post-9/11 world of the U.S. airline industry, management strategy based its decisions largely on easing the growing anxiety of individuals who had ties to the industry. In an industry that had gone from maintaining the standards of excellence one moment to being thrown into utter disarray the next, managerial efforts to reorganize work and employees needed to address the corresponding disruption that had become present across the country.

In the months following September 11th, anxiety in the country and particularly in the airline industry was almost tangible. New laws dealing with safety and security were being turned out into legislation as quickly as they were thought up, which left the airline industry responsible for implementing these new regulations into airlines across the country, which proved costly and time-consuming -- factors that management had to deal with in one way or another. With the TSA moving forward within airlines with little regard to costs or long-term implications, U.S. airlines also moved quickly into developing and implementing safety strategies within their operations. From arming pilots to fingerprinting employees, reissuing identification badges to developing new security policies, developing new procedures and trainings to equipping all aircrafts with bulletproof cockpit doors, costs were allocating and funds were running low, and airline management was left with the task of making up for these costs in any way possible.

As time went on past 9/11, nearly every major airline entered a state of bankruptcy, and was forced to restructure and furlough employees (Fraher, 2011, p.12). Management within airlines were forced to make extreme cuts within operations and staffing, between the years of 2001 and 2005, nearly 14,000 commercial pilots lost their jobs at the seven major U.S. airlines, nearly a 30% reduction, 4,400 mechanics and aircraft cleaners walked off the job after cuts in wage and benefits, and 1,500 temporary employees were placed on furlough (Fraher, 2011, p.13). Such cuts did not bode well for managers who were often held contemptuously in the minds of employees as they continued to slash employment and benefits and hike fees, but such decisions needed to be made in order to keep the industry afloat.

One area that saw significant management strategy adjustments in the days and years after 9/11 was airline security. Prior to 9/11/2001, the Transportation Security Administration, which is now a staple in the operation of airports and airlines across the nation did not even exist. In its first year of operation after the events of 9/11 and managerial restructuring within airlines, TSA hired over 55,000 people and placed initial technology in 450 airports, which these airports had to compensate for in terms of management and protocol (Sign, 2011, p.1). The staffing and payment of TSA employees by the government encroached on airline's private security staff and raised costs in terms of keeping these individuals on staff in addition to TSA workers. Further, the implementation of the TSA and its technology within airports across the country left management in a position to increase security measures throughout airports in accordance with new government standards -- all without increasing costs significantly.

Additionally, the cost of fuel has further gone up significantly, causing management to develop strategy and budgets to deal with such increases. For example, as oil prices continued to rise in the years post-2001, jet fuel prices also rose, and a higher percentage of airline operational costs were relegated to buying this fuel. Pre-9/11, the costs were at 13%, while today costs are projected to be an average of 30% (Goldschein, 2011, p.12). As seen in these two facets alone, the costs of airline operations across the United States has risen significantly since 9/11, and while it remains a job that is often scrutinized by the public, the task of making up for these costs in order to turn a profit and enhance an airline's bottom line remains up to the managerial staff in terms of strategizing and putting in place functions that will generate profit and maintain operations.

Additionally, U.S. airlines saw a loss in revenue from decreased flying and increased costs in terms of security, money which needed to be made up somewhere. With passenger traffic falling by 2.7% in 2001, revenue also fell, and the U.S. airline industry lost $23 billion in the first two years after 9/11 (Goldshein, 2011, p.8). Since then, management strategists have had to deal with significant changes in the airline industry environment, one of which was significant downturn in profits and revenue. In hopes of combatting this loss, passenger costs that used to be part of the ticket price were altered to be added on afterwards in the form of separate fees. These fees have continuously risen since 2001 to unparalleled numbers that have begun to cause additional problems for the airlines who utilize them. For instance, last year, domestic airlines raised $3.4 billion by charging for checked baggage, when in comparison, in 2007, the figure was $464.2 million, something which passengers have taken considerable disagreement to (Goldschein, 2011, p.6).

Airline management has also made the decision to cut costs by cutting conveniences that were once offered to flyers as a complimentary part of purchasing a ticket. Since 2001, U.S. airlines have made significant cuts in food, beverage, customer service, capacity and other onboard conditions that were once offered to the flyer at no cost. Traveling cross-country on business on a long flight? Today, a meal, an in-flight movie, even a blanket will cost a passenger extra, but the industry views these cuts in service and increases in fees as a means to break even in an industry of ever-increasing operational costs. Facets of "customer service" that were long taken for granted by flyers are now sorely missed in the grand scheme of things. Regardless, management strategies have begun to generate significant revenue in forcing flyers to pay for such "conveniences." In 2009 alone, U.S. Airways generated an average of $450 million from a la carte items like checked baggage fees, choice seats and rental of blankets and pillows (Smith, 2009, p.1).

Competition

The airline industry itself it a highly competitive entity, and 9/11 only added to this competition, largely with airlines competing in terms of new safety standards that patrons flocked to. In viewing the intensity of competition and the profitability of the industry itself, airlines enforced management models in order to identify competitive forces in the market. For example, Michael Porter's "five-forces-model" can be used to illustrate the forces that airlines looked for in determining how to gauge competitors. These forces include: entry of competitors, threat of substitutes, bargaining power of suppliers, bargaining power of buyers, and rivalry among the existing players, all of which can be viewed as relevant in viewing competition in the post-9/11 U.S. airline industry (Hubbard, 2004, p.35).