Aviation industry reclaims the sky

6 Sep, 2002 10:22 AM8 mins to read

Aviation took the biggest blow of any industry on September 11. Herald aviation correspondent CATHY ARONSON examines how, in a matter of moments, everything changed.

"Before September 11, civil aviation was the ... symbol of commerce. We knew with certainty that it built economies. We knew it tied the world together. We knew it improved our quality of life. On September 11, the world changed. Terrorists turned tools of commerce - instruments of unity - into weapons of hate." - Jane Garvey, administrator, United States Federal Aviation Administration at the International Civil Aviation Organisation (ICAO) 33rd assembly, September 25, 2001.

As the World Trade Centre towers began to crumble so, too, did global aviation, passenger confidence and world economies.

The impact was immediate. Minutes after the attacks, the Federal Aviation Authority closed US air space for the first time in aviation history, grounding 6000 planes. Thousands of passengers were stranded for up to four days.

As the horror hit, the aviation world faced a new reality.

In New Zealand, within 24 hours Civil Aviation Authority director John Jones used his emergency powers to improve passenger and crew safety.

Travellers within New Zealand became potential terrorists and, for the first time, had their hand luggage screened and searched. The Aviation Security Service (Avsec) had previously scanned hand luggage for VIPs or special events, such as the Springbok Tour in 1981, but never on a national scale.

Personal items previously considered harmless, such as nail files and knitting needles, became potential weapons and were confiscated. The costs were passed on to passengers, who now pay a $2.80 security levy for domestic travel.

Passengers heading for the US and Asia had to check-in four hours, instead of two hours, before departure as security staff searched and x-rayed hold luggage.

Behind the scenes extra security staff patrolled airport fences, carparks and check-ins. Airlines restricted access to flight decks, even for children and families.

CAA security manager Trevor Joy says the system was strained to the limit but Avsec implemented the changes almost seamlessly.

"We knew the world was different, we had a high-risk situation and we had to respond to it quickly."

But despite everyone's best efforts to remain calm, passengers stayed away. They had been bombarded with images of planes crashing into huge central-city buildings, triggering an unprecedented fall in travelling while aviation security and insurance costs soared.

In September, passenger traffic worldwide dropped by 17 per cent and freight traffic dropped by 16 per cent.

The US was hit hard: passenger traffic fell by 32 per cent and airline capacity was cut by 20 per cent.

But that was only the beginning - traffic continued to tumble until December. By the end of last year there were 60 million fewer passengers and freight had dropped by two million tonnes.

The blow hit an already desperate industry. Airlines had lost $3 billion in the eight months before September 11. Aviation had suffered in a slow world economy that had reduced demand, raised operating costs, created overcapacity and increased competition.

By September 11, airlines had little room to manoeuvre. To survive, they had to cut unprofitable routes and reduce flight frequency and staff. By the end of the year 120,000 airline employees had lost their jobs.

To get passengers flying again airlines offered cheaper flights. But to do that they needed to reduce overheads. As well as cutting routes, they retired old aircraft to reduce capital costs. About 2500 new plane orders were cancelled.

Aeronautical engineering and manufacturing companies had to cut 40,000 jobs. The ICAO estimates that aerospace manufacturers will have lost up to $7.5 billion by the end of this year.

International airlines lost more than $10 billion by the end of last year, despite financial assistance. The European Commission compensated airlines in 15 of its states for the four-day shutdown and US airlines received $15 billion in financial assistance and a $5 billion cash grant.

But airlines still struggled, and a month before the anniversary of September 11 the scale of the problem was obvious, especially in the United States, which accounts for about one-third of world aviation.

America's sixth-largest carrier, US Airways, which lost $2 billion last year, gained court bankruptcy protection. That caused airline stocks to tumble, hitting the world's second-largest airline, United Airlines, when parent company UAL Corp's stocks fell 27 per cent. United, which lost $851 million in the first half of this year, is now trying to reduce costs to avoid bankruptcy.

A United Airlines closure could also affect other airlines that share passengers through the Star Alliance, including Air New Zealand.

On the same day in early August that United Airlines stock tumbled, American Airlines said it would cut 7000 jobs, 6 per cent of its workforce, retire 74 aircraft and cut 9 per cent of scheduled services to save $1 billion.

The other big US carriers - Northwest, Delta and Continental - are looking at codeshare alliances, but rules about anti-competitive behaviour could prove a difficulty.

The damage is not limited to the US - in Europe Swissair was saved by a Government bailout.

But Centre for Asia Pacific Aviation analyst Peter Harbison says despite the gloom there have been some "bright lights".

Aviation is facing a new world with a new kind of consumer. Airlines that have done well in the past 12 months are either low-cost, have a hold on their national market or are merging to survive.

David Neeleman made himself a billionaire by floating Jet Blue, and South West Airlines is still profitable. In Europe EasyJet and Ryanair are making profits.

Air New Zealand faced its own problems immediately after September 11, when its Australian domestic carrier, Ansett collapsed, and it needed a $885 million Government bailout to survive after a record $1.4 billion loss.

It cut 800 jobs and turned its domestic service into a low-cost, one-class service with no meals.

Last month the airline revealed a $319 million net loss, dominated by a $389 million write-off of Ansett. It announced a $39 million net profit after tax, but chairman John Palmer says it needs more capital to survive. It is considering a buy-in from transtasman competitor Qantas.

Harbison says Qantas was spared the September 11 fallout by using its free capacity from the international downturn to fill the gap Ansett left in the Australian domestic market. It increased its size by about 40 per cent and reported a $428 million profit for the year to June.

But he warns that the airlines need to join forces to survive in an increasingly competitive market.

Since September 11, airports have become the most profitable business in aviation. While they have faced increased insurance premiums and decreased parking and landing charges, most have continued to make a profit.

Auckland International Airport posted a record $71 million net profit, a 20 per cent increase on last year.

But it faces new challenges as the Minister of Commerce considers pricing controls based on a Commerce Commission recommendation.

Airports also face increased costs in introducing new international security standards, set by the ICAO, meaning they will have to screen all hold luggage by 2006.

Auckland Airport general manager David Hansen says the airports could face costly renovations to accommodate new large x-ray machines, which can cost $1 million each and $100,000 to install.

The airport has formed a working party with the CAA, Avsec and the Ministry of Transport to consider other ICAO security proposals - they have already rejected one to arm pilots and sky marshals.

But New Zealand is considering sophisticated passenger identification, using facial, finger or eye recognition.

CAA security manager Joy, a former ICAO security consultant, says before biotechnology can be introduced there has to be international agreement on a method of storing and accessing the information.

But he says that as the anniversary approaches the world needs to take a step back and make sure it is not going too far.

"Certainly the world is more secure and is balanced with the threat. It's changed aviation forever and for the better. But we don't want to put people off flying altogether, we have to go into the future with a level- headed approach."

In July Avsec relaxed its security measures and passengers can now carry umbrellas and knitting needles on flights other than those to the US.

September 11 had an unprecedented effect on people's anxiety, says Fear of Flying course administrator Sue Amos. For the first time since it opened 20 years ago, the course stopped for six months, but is now seeing a healthy resurgence in the number of people willing to face their fears.

"I think the reality is now sinking in, rather than the horror and horrible feeling we all had. We have lives to get on with."

Tourism is starting to bounce back. At the end of June total arrivals in New Zealand were up 3.8 per cent on the previous year, but internationally it is expected to take another year before travel will again reach pre-September 11 levels.

"On September 11, terrorists destroyed the World Trade Centre, damaged the Pentagon and murdered [thousands]. We must not let them hold aviation hostage. Safety and security aboard commercial aircraft must be unquestioned. While none of us may regain our lost innocence about the freedom to travel, we can - and we will - enjoy a transportation system that is safe, secure and stable." - Jane Garvey, FAA, at ICAO assembly.

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