- After 9/11, intensified airport security measures increased passenger hassle and travel times, decreasing demand for air travel. Airlines cut capacity and lowered prices, improving load factors but reducing yields.
- Airports charged more for services to cover increased security costs, passing these costs to passengers rather than negotiating with airlines. This gave airports more control over total service levels.
- A model of optimal airplane size shows that after 9/11, with higher passenger user costs, airlines may have been able to operate more efficiently with smaller aircraft on some routes. Faster security and baggage handling could allow for larger aircraft.
- After 9/11, intensified airport security measures increased passenger hassle and travel times, decreasing demand for air travel. Airlines cut capacity and lowered prices, improving load factors but reducing yields.
- Airports charged more for services to cover increased security costs, passing these costs to passengers rather than negotiating with airlines. This gave airports more control over total service levels.
- A model of optimal airplane size shows that after 9/11, with higher passenger user costs, airlines may have been able to operate more efficiently with smaller aircraft on some routes. Faster security and baggage handling could allow for larger aircraft.
- After 9/11, intensified airport security measures increased passenger hassle and travel times, decreasing demand for air travel. Airlines cut capacity and lowered prices, improving load factors but reducing yields.
- Airports charged more for services to cover increased security costs, passing these costs to passengers rather than negotiating with airlines. This gave airports more control over total service levels.
- A model of optimal airplane size shows that after 9/11, with higher passenger user costs, airlines may have been able to operate more efficiently with smaller aircraft on some routes. Faster security and baggage handling could allow for larger aircraft.
offer flights for very low Some effects of intensified prices. Cutting capacity means flying less frequent. It is commonly security and safety procedures assumed that demand reacts rather in-elastically
on airports and airlines to frequency offered. The
first effect thus was that load factors rose. On the The case of decreasing optimum airplane size other hand, price wars emerged. Therefore, By H.B. Roos and B. van Herwijnen yields decreased. At Eramus University Rotterdam airports, the increasing security measures resulted into increasing ground handling capacity utilization. Their reaction When Pan Am Flight 103 crashed was to near Lockerbie, Scotland, December charge more 1988, killing 270 people, it was the for their worst act of terrorism ever in the air services to transport industry. After September cover the 11, 2001, it almost appears as a increased footnote in history. People no longer security considered air transport as a safe way costs. of travelling and demand for air Before transport services expressed by September passengers decreased enormously. 11, the costs Airlines responded by cutting capacity of security and lowering prices of their services. checking This resulted in better load factors, but used to be a still yield is very low. This article demonstrates that airports have a September 11, 2001 led to cancellations and intensified security part of the major stake in the airlines’ struggle to negotiations consumer uses the air transport between airlines and airports. These overcome the effects of September 11 service provided by the airline. In this costs have therefore never been on profitability. The explanation of service, ground handling activities and ‘visible’ for passengers. To cover the this statement is found in a simple flying are melted to one integrated extremely increased security costs total cost based model of optimum service. The increased hassle and time after September 11 the ‘internal plane size. costs at the airports makes the air character’ of these costs changed into transport service less attractive. After ‘external’. Security surcharges are Airports and airlines serve the end- September 11, people are more now sometimes charged to passengers user by means of a sophisticated sensitive for travel time. In economic directly. Costs are passed on to the system of relations. After the airborne terms, the time elasticity of demand is customers and are no longer in control attacks on WTC and Pentagon now higher than before September 11. of airlines. Beside uncertainty in buildings, air transport faces some The awareness of the consumer’s travel time, passengers are now also serious problems. Intensified security effort makes time being recognized as confronted wit uncertainty in terms of measures at airports after September a major input of passengers in the ‘money’. Airports are more and more 11, are affecting the relation between consumption of air transport services. in the driver’s seat regarding the airlines and airports. A total cost Especially for frequent flyers, the definition of the total level of service based model of optimum plane size, increased time costs for the passenger to passengers, whereas in former days shows that after the events of (user cost) resulted in an alternative the airlines were. If airports only care September 11 the optimal plane size mode choice for short distance about covering costs and do nothing could have decreased. travelling. A change in the modal split to improve their services, in the long seems to be one of the effects on term this policy will have negative Together airports and airlines serve shorter travel distances. effects for airlines and for airports. customers in a system of complementary services. Actually, the Some of these negative effects can be The airlines’ reaction on the explained by a total cost based model end – user is a customer of the airport decreasing demand of air transport of optimum plane size. and the airline simultaneously. The
Aerlines Magazine e-zine edition, Issue 23 1
In a ‘total cost’ based model of dealing with a simple flight from A to and their luggage could enable optimum plane size, user and B. On this direct flight, the plane is airlines to put in service larger producer cost have to be not affected by longer check-in times airplanes. distinguished. User costs are costs and security hassle. The passengers - Airports benefit from larger related to time and effort put in by the just have to be at the airport earlier planes as well: flying larger consumer of the service. For example, and the airplane’s turnaround time is planes means less congestion. consumers have to make costs when not affected. So, assuming a simple going to or from the airport, costs of direct A to B flight makes it justifiable Considering the lessons to be learned check-in times, and hassle time in to state that the producer cost on this from this analysis, it could be stated security procedures. Producer costs particular flight did not change after that the short-term airport policy of are the average costs of producing a September 11. Therefore, the only covering costs hurts the airport standardized transport service: seat- producer cost in the model did not client; the airline. It should therefore miles. User and producer costs change. The increase of user cost on a be the airport’s first responsibility to together are the total costs of the air particular flight increased the total protect its client’s need to attain transport service. costs of the air transport service as economies of scale. well. As the total costs level changes, It is difficult to identify some the optimum plane size will change. empirical evidence for the user cost In the model, a new minimum level of variable. Nevertheless, it is accepted total costs matched with a smaller to state that the user cost increase as optimum size. We may not forget that the airplane size increases. Passengers flying smaller planes will withhold flying on a large aircraft have to airlines from gaining economies of check-in earlier and have more scale and, larger airports will be queuing at the airport than passengers confronted with more aircraft flying on a smaller aircraft. Regarding movements, and therefore more the producer cost, a database with congestion. direct operating costs for in- production aircraft of several types The model is supported by a recent has been analyzed. This analysis published article at the website of supports the statement that average airwise.com: costs of producing a standardized air news.airwise.com/display/story.html? transport service (seat - miles) name=2002/06/1023793862.html. decreases as the airplane size David Siegel, CEO of US Airways, increases. Now it is clear that as the states that in the airlines struggle to airplane size increases, the user cost recover from the impact of the increases as well and the producer September 11 attacks, it will change cost decreases. Trading off the its fleet towards more regional jets. increasing user cost and the “The growth of regional jet operations decreasing producer cost will result represents the future. It is central to into a plane size that matches the the successful restructuring of our minimum level of total costs company.” he said. (producer + user cost). This size is the optimum aircraft size. Based on examining the sophisticated relation between airports and airlines, Back to the main issue of this article: and analyzing what could happen if “Airports have a stake in the airlines’ airports after September 11 would struggle to overcome the effects of only care about covering their costs in September 11th on profitability”. The a total cost based model of optimum question resulting from this statement plane size, the following lessons can is: “What could happen if airports be learned: would only care about covering costs - If only the costs at the airport are due to increased safety and security covered, still the airlines suffer. procedures after September 11?”. In a - If airports do nothing, they total cost based model of optimum prevent airlines to benefit from plane size, the following scenario may economies of scale. be valid: - Airports must enable airlines to look for economies of scale and The extra security costs of the airport density in the airline industry, by are under control, but the passenger bringing down waiting time for waiting time and hassle still is out of passengers. control. That makes it is justifiable to - Investing in handling equipment state that the user cost in air travel will prevent many problems. A will rise. Let us keep the model as proper reengineering of the simple as possible, and assume we are process used to handle customers