10. The airline industry today ( Individual work)

The World Tourism Organization’s definition of tourism is “Tourism is comprises of the activities of persons traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business, and other purposes. Tourism is a dynamic, evolving consumer driven force and is the world’s largest industry if placed under one umbrella.  (Walker, 2006). 

     In this report, I will discuss the issues surrounding the airline industry as it relates to tourism and the transformation that has taken place over the years. We know that air travel is essential to provide transportation not only for the movement of people but of goods and product as well. Key factors that have change the airline industry consist of the economy, fuel prices, mismanagement, bankruptcy, and yes, even the outbreak of infectious diseases such as SARS and the Swine Flu. On the positive side, “customer service commitment” promise was develop and implemented amongst the larger carriers. I hope my research reflect more of the behind the scene in what actually is involved outside of the purchase of a ticket and visiting some of your favorite destinations.

Deregulation

     In 1978, The Federal Government Deregulated the airline industry, cutting it loose from acres of red tape and allowing a free market to determine ticket prices, schedules and service levels.  Many years later, the airline industry is a hopeless, money losing business that has misused government handout and employee sacrifices.

     Since deregulation the nine largest airline carriers have post losses in 12 out of 26 years racking up a cumulative lose of roughly $16 billion, according to the data from the Air Transport Organization. For more than 25 years, ever since deregulation fare wars have been the standard management response to increase competition.  As a result the nominal prices of an airline ticket are up just 38% since 1978.  Other things such as a college education are up 522%.  But flying an airplane still remains cheap.

Fuel Prices

     Business Travel Coalition Chairman Kevin Mitchell stated the “the airline industry stimulates so much economic activity.  Airline networks are an integral part of the transport grid that supports the U.S. economy, and without immediate action to bring down fuel cost, we face the economic equivalent of a major blackout later this year or early next.”  Jet fuel a by-product of crude oil accounts for 15% of the industry’s cost the second-largest expense after labor. To avoid a spike in fuel costs, airlines have traditionally brought insurance or hedge to ensure to have a steady stream of cheaper fuel. (Gillin, 2004).

     “The runaway price of oil is seriously hurting working families at every level, and as the airline fuel crisis intensifies, the major job losses in all travel and tourism sectors and airline-dependent industries increases as well” stated Jean McDonnell Covelli; BTC member and President of Travel Team, Inc.  The skyrocketing price of aviation fuel will have devastating implication far beyond new surcharges for checked bags and in-flight beverage services according to a new study prepared by the Business Travel Coalition.

       Failure of just one airline would disrupt the travel of 200,000 to 300,000 thousand passengers per day and thousands of tons of goods. Failure of multiple airlines would paralyze the country and our American way of life.  Between 30,000 and 75,000 employees would lose work immediately with just one airline failure with payroll losses of $2.3 billion to 6.7 billion. The International Air Transport Association said in its 2009 forecast the industry would expect to lose 2.5 billion dollars.  The drop in oil prices, from a peak of nearly 150 dollars a barrel over the summer to their current rates at slightly 40 dollars, had only marginally cushioned the economic crisis, with the total losses for this year standing at about 5 billion dollars.

     The world’s largest industry would be devastated in the U.S. with locally severe effects in places like South Florida, Hawaii, Las Vegas, or Colorado depending on which airline(s) fail.  Restaurants, pharmaceutical companies and manufacturers relying on just-in-time parts, florist, grocers and the fashion industry would be amongst those injured.  Government layouts would have impact immediate demands in the form of unemployment compensation, retraining and the demands for other resources. 

Economy

     The travel and tourism industry has added for the first time new jobs since September 11, 2001 the industry still struggles to meet pre-2000 numbers according to a new study by the United States Chamber of Commerce.  David Hirshmann, executive vice president of the National Chamber Foundation said “Without a strong travel and tourism industry, we will not have a strong economy.” While the industry still has a long way to go to restore its financial health.    Necessary airport security procedures still take too long, legitimate foreign visitors face unacceptable visa delays, and our outdated air traffic control system is generating needless travel backups.  All these issues discourage travel and tourism and have a negative impact on the overall economy. Globally, passenger traffic is expected to decline 3 percent and cargo by 5 percent in 2009, having dropped significantly in the past three months, as different regions went into recession or a period of stunted growth.

      According to the Impact of Travel and Tourism on the U.S. and States Economies, published by the U.S. Chamber and Travel Industry of America, the industry employed 7.3 million people and paid out $163 billion dollars in wages, and generated $100 billion in tax revenue for local, state and federal governments in 2004. (Rozett & Wohlschlegal, 2005)   The elasticity of demand, externalities, wages inequality and monetary, fiscal and federal policies all have an impact on the airline industry. 

     The industry is constantly changing due to today’s market.  Traveling by air is both elastic and inelastic depending on whom it is that is traveling.  It is considered elastic if a family was planning a trip just to take a vacation and the price of an airline ticket is extremely high, will likely wait until the ticket price is lowered.  However, if a businessman needs to be at a seminar across country the next day, he will need a ticket regardless of the cost would be considered inelastic because it is a necessity.  The current market has a big part in the supply and demand in the airline industry. 

     Many airlines such as US Airways develop a strategic partnership with Star Alliance to provide more international services to become more of a global carrier. The Star Alliance is a network expansion of code share service, frequent flyer programs, single ticket pricing, and one stop check-in and baggage handling with US Airways, Lufthansa, Spanair, Caribbean Sun, and Winair just to name a few.  To reduce losses brought upon by deregulation and higher fuel cost, major carriers have eliminated unprofitable routes, often those that service smaller cities.           

     As we look at the economic impact of tourism, and according to a study conducted by the Wharton Economic Forecasting Association it is reported that the total demand for travel and tourism will be $2,571 billion by 2010, and that’s more than 10 percent of the world’s gross national product (GNP). Statistics show that international travelers spend about $73.3 billion on travel related expenses such as hotels, food and entertainment.  20.8 million people are directly employed in the industry, making travel and tourism the nation’s second largest employer, after health services.  Travel generates about $95.6 billion a year in tax receipts. International visitors spend about $21 billion within the United States, which equates to 40 million international travelers a year. (Walker, 2006)

Bankruptcy

     United and US airways were among several airlines that made Chapter 11 filings for 2001 through 2005.  These companies used bankruptcy protection to shed debt and lower labor and pension cost.   Nine of the largest U.S. airline carriers loss nearly $600 million dollars in the second quarter of this year.  Bigger losses are predicted in the third and fourth quarters, and some analysts have raised the possibility of another round of bankruptcies.  Flight attendants have seen their work rules changes dramatically.   Pensions have been abandoned by bankrupt companies.  The only parties in the current position that airline bankruptcies seem to be advantageous are the airline executives, the lawyers and the bankruptcy financing firms.  This greedy threesome has been working the bankruptcy system to line their pockets and the hell with the rest of the players.

     According to SEC filing in February and March of 2006, CEO of United, was awarded more than twenty million dollars by the airline’s board of directors.  According to Unionvoice.org, his hand-picked legal firm, Kirkland & Ellis, has charged more than fifty million dollars and one attorney has pocketed almost two million dollars in fees for a recent year.  (Leocha, 2007)  The former CEO of Delta worked for the company less than six years and walked away with a pension promising a million dollars a year.  And unlike the pensions of the airline pilots and flight attendants, his retirement is protected and guaranteed by a special executive trust fund. 

     According to Arianna Huffington, the former CEO and the former CFO of Usairways reportedly each walked away with thirty-five million dollars in salary bonuses and stock options in 1998. Then they feathered their retirement nest by receiving administrative credit for more than twenty years that they weren’t actually on the job.  The CEO, Stephen Wolf, left the company with a fifteen million dollar pension cash-out just six months before Usairways declared bankruptcy. 

     According to the reports in the Atlanta Business Chronicle, Delta’s thirty-nine thousand non-union contract employees will share an estimated 480 million in stock and cash payments (or about 12,300 each), while 1,200 executives will share a jackpot of restricted stock, stock options and performance shares estimated at about $240 million (or about 200,000 each). 

This means that the executives are receiving sixteen times the share of the non-contract employees.

Customer Service

     According to the University of Michigan survey shows that the airline customer satisfaction at seven major airlines rose 3.2 percent earlier this year, the first such increase in six years.  The report also shows that fees have played a big part in improving the customer experience, especially in the baggage area.  Considering fewer people are flying and airlines have cut flights, fewer people are checking bags making it easier for airlines to manage bags that are check.  On a scale of 100,  Southwest was tops with 81 followed by Continental at 68, Delta at 64, American at 60,  Usairways at 59, Northwest at 57, and United at 56.  Other popular carriers such as JetBlue and Airtran were not included. 

    The airline industry still has a ways to go with the high fuel prices, indifferent service, labor problems, congested airports and financial challenges have plagued the industry for a longtime and even with the current improvement, and airlines remain one of the lowest scoring businesses. (Unger, 2009)  Several airline carriers have developed the:

“Customers First 12 Point Customer Service Commitment”

Each participating airline commits to:

1. Offer the lowest fare available: Each airline will offer the lowest fare available for which the customer is eligible on the airline’s telephone reservation system for the date, flight and classes of service requested.

2. Notify customers of known delays, cancellations and diversions: Each airline will notify customers at the airport and on board an affected aircraft, in a timely manner, of the best available information regarding known delays, cancellations and diversions.  In addition, each airline will establish and implement policies for accommodating passengers delayed overnight. A clear and concise statement of airlines’ policies in these respects will be made available to customers.

3. On-time baggage delivery: Each airline will make every reasonable effort to return checked bags within 24 hours and will attempt to contact any customer whose unclaimed, checked luggage contains a name and address or telephone number.

4. Support an increase in the baggage liability limit: The airlines successfully petitioned the Department of Transportation to increase the baggage liability limit.

5. Allow reservations to be held or cancelled:  Each airline will allow the customer either to hold a telephone reservation without payment for 24 hours or to cancel a reservation without penalty for up to 24 hours, in order to give customers an opportunity to check for lower fares through other distribution systems, such as travel agents or the internet.

6. Provide prompt tickets refunds: Each airline will issue refunds for eligible tickets within seven days for credit card purchases and twenty days for cash purchases.

7. Properly accommodate disabled and special-needs passengers:  Each airline will disclose its policies and procedures for handling special-needs passengers, such as unaccompanied minors, and for accommodating the disabled in an appropriate manner.

8. Meet customer’s essential needs during long on-aircraft delays:  The airlines will make every reasonable effort to provide food, water, restroom facilities and access to medical treatment for passengers aboard an aircraft that is on the ground for an extended period of time without access to the terminal, as consistent with passengers and employee safety and security concerns.  Each carrier will prepare contingency plans to address such circumstances and will work with other carriers and the airport to share facilities and make gates available in an emergency.

9. Handle ‘bumped’ passengers with fairness and consistency: Each airline will disclose to a passenger, upon request, whether the flight on which the passenger is ticketed is overbooked, if, within the usual and ordinary scope of such employee’s work, the information is available to the airline employee to whom the request is directed.  Each airline will also establish and disclose to the customer policies and procedures, including any applicable requirements (such as check-in deadlines), for managing the inability to board all passengers with confirmed reservation.

10. Disclose travel itinerary, cancellation policies, frequent flyer rules and aircraft configuration: Each airline will disclose to the customer: (i) any change of aircraft on a single flight with the same flight number (ii) cancellation policies involving failures to use each flight segment coupon (iii) rules, restrictions and an annual report on frequent flyer program redemptions; and (iv) upon request, information regarding aircraft configuration, including seat size and pitch

11. Ensure good customer service from code-share partners: Each airline will ensure that domestic code-chare partners make a commitment to provide comparable consumer plans and policies

12. Be more responsive to customer complaints: Each airline will assign a Customer Service Representative responsible for handling passenger complaints and ensuring that all written complaints are responded to within 60 days.  Each airline will develop and implement a Customer Service Plan for meeting its obligation under the Airline Customer Service Commitment.  Customer Service Plans will be completed and published within 90 days and will be fully implemented within 6 months.

     Southwest’s success has attracted of attention from industry analysts, with much credit going to CEO Gary Kelly.  As CFO of Southwest several years ago, Kelly introduced a fuel-hedging strategy that has buffered the airline from rising oil prices.  To ensure the best customer service, you have to put the customers second.  With the “Southwest Model for Leadership,” employees are the company’s number one customer.  As the airline continues to offer low fares for short-distance flights, Barrett said, the company will maintain programs that let employees raise children between divorced parents, allowing grandparents to see their grandchildren more often and enabling college students to go home to do their laundry over the weekend. (Taylor, 2005) 

    Barrett believes that the company’s open door policy with employees makes it easier for Southwest to solve problems. Within the company, there are no form replies of any kind.  And when an idea is rejected, an explanation is always provided.  Southwest doesn’t need to conduct surveys or use consultants very often to determine what they are doing wrong or well. The employees will tell them to their face year-round.  “We don’t run things by a rule book,” she concluded. “To me, it’s a way of life…you just use common sense.” After the employee, Barrett says the company’s second focus is the passenger, with the shareholders coming in a distant third.  Usually, shareholders rankle at that kind of hierarchy.

Trends in Tourism and Travel

     As travel become more complex, the industry must make adjustments to follow the changes involved in travel. Just to name a few: Globally, the number of tourist arrivals will increase by 4 percent per year. Governments will recognize the importance of tourism as an economic force and the social cultural force would have increased. Franchising of travel agencies and home-based travel agents will increase. Technology will continue to advance, providing more information to be readily available more quickly to more places around the world. Ticketless air travel will become commonplace. There will become an increase in the number of “boutique” airlines. Low-cost no frills airlines, such as Jet Blue, ATA, and of course Southwest, are gaining an increased market share at the expense of the six main U. S. airlines. Increasing use of ticketless travel will replace paper tickets. Airlines will try to entice travelers to book their travel via their web sites, versus a third party site such as Expedia.  Increased use of printing boarding passes from home and web-check-in.  Increased concern for the health and safety of travel and tourism. (Walker, 2006)

In-flight Food Service

     Airlines at one point were constantly striving to be more efficient, demanding better food at the same or lower cost.  In-flight food may be prepared in a factory mode at a facility close to but outside the airport.  In-fight foodservice is a very complex logistical operation. The food must be able to withstand the transport conditions and the extended hot or cold period from the time it is prepared. (Walker, 2006)  Gate Gourmet International is the largest in-flight foodservice provider, operating in twenty-seven countries on six continents from more than 140 catering facilities and produces over 250 million meals on an average annually.  Some international airlines try to stand out by offering superior food and beverages in hopes of attracting more passengers.   Now, airlines have decreased their in-flight foodservice and airports have picked up the business. Most airports now have popular food chain such as TGIF Friday’s, Pizza hut and Chili’s. Many airlines such as US Airways have incorporated the al’carte service to provide customers a different dining experience. Many flights that are over 2.5 hours long will fresh meals for purchase as well smaller snack items (chips, cookies, noodle soup, oatmeal) to satisfy that hungry craving we all have when traveling. 

On-Time Performance

     The DOT’s Bureau of Transportation Statistics said that 19 carriers reporting on-time performances had an overall rate of 77.6% in July, up from 75.7% a year earlier and 76.1% in June.  The agency said that carriers canceled 1.2% of their scheduled flight, compared with 1.7% a year earlier and 1.5% in June. The most frequently delayed trip for July was Northwest Airlines Corp’s (NWA) flight from Boston to Tampa, which was late 96.8% of the time. (Solsman, 2009) 

     It was a bad month for travelers caught in tarmac delays. The industry reported 172 flights with three hours or more of wait time before departing, up from 25 in May. JetBlue and ExpressJet each had a flight that had tarmac delays of five hours or more at New York John F. Kennedy and New York LaGuardia, respectively.

     The industry’s on-time rate has been improving steadily in the recent months as airlines cut back on flights, which eases airport congestion. But airports are more crowded in the summer as air travel start to climb in June from earlier months.  Among the major carriers, Alaska Airlines was the best performer, with 84.5% of flights arriving on-time, Frontier was the worst, with 68%. (Yu, 2009)  About 200,000 domestic passengers have been stuck on about 3,000 planes for three hours or more waiting to take-off or taxi to a gate since January 2007.

      A USA Today analysis of Transportation Department data shows between October 2008 and May 2009, there were 577 planes that sat that long. The airlines, say that long delays are and result mostly from bad weather and a back-up air traffic-control system. Mechanical and other safety concerns also contribute to delays. 

     Southwest Airlines carried more total system and more domestic passengers for the first 11 months than any of 2008 than any other U.S. airline.  American Airlines carried more international passengers than any other U.S. carrier. In November, U.S. airlines operated 767,100 scheduled domestic and international flights, down 11.9 percent from the number of flights operated in November 2007.

Passport Policy

     Many rules have changed for Americans, Air travel and Passports. New passport rules for air travel came into effect January 23, 2007.  Included in these rules was a passport requirement for air travel to countries such as Canada, and Mexico, where previously only proof of citizenship was required for U. S. citizens.  In early June, record demand and a backlog on passports led to government amending its policy temporarily. Currently, only 21.7 percent of the U.S. population has passports.

Air Travel and the Swine Flu

     During the swine influenza outbreak, extra vigilance is required to identify and report passengers with respiratory systems or fever.  Flight and cabin crews workers are required to report passengers who meet certain illness criteria to CDC Quarantine Stations, the CDC says.  Recent research on airline health issues, including infectious diseases, that several outbreaks of “serious infections such as influenza, measles, severe respiratory syndrome (SARS) and tuberculosis have been reported on commercial flights. However, the risk of on-board transmission, the researchers noted, is mainly restricted to within two rows of the passenger carrying the infection.’

      Like routine human flu, cases of swine flu can range from mild to severe. Most of the cases confirmed in the U.S., so far have been relatively mild.  The World Health Organization has confirmed 105 cases of swine flu in seven countries, but reports are still coming in.  Over half of the confirmed cases (66) are in the U.S. today. Cabin and flight deck crew members should be aware of the possible symptoms of influenza. A (H1N1) virus infection including fever, cough, sore throat, aches, headache, runny or stuff nose, chills, fatigue, and in some cases diarrhea and vomiting.

Conclusion

    We as Americans just remembered the fallen heroes of the September 11, 2001, tragic terrorist act that had take away many families, friends and co-workers eight years ago. Looking back, not only working for the airline, but as a flight attendant I felt the pain of my fallen co –workers. Although, we work for different companies, the job remains the same. Even today, the tourism and travel industry suffered a crippling blow with the fall of many airlines and other businesses that could not survive after that tragic event.

     Now, faced with high fuel cost and the reduction of frequency of flights for the airlines, many companies are force to downsize, lay off workers and suspend pension plans. CEO’s has mismanaged many companies that the top 5 or 6 airlines had to file bankruptcy. Remember, this is the CEO’s golden egg. Yes, labor and contract issues still remains a big problem with many airlines.  As I look at this industry today, consumers are traveling more, but now at a more reduced ticket price and the level of services offered by the airlines have change too.

      On the brighter side, many hotels and airlines are using special rate packages to entice travelers to visit different destinations. Passengers have a commitment policy that most airlines must follow. On- time performances are getting better and airports are equipped with fast food places, business lounges, and so much more. So, on your next trip whether it’s for business or pleasure, be nice to your crew. I’m sure they would appreciate it. I do.