10 years after 9/11, the airline industry is looking up


The terrorist attacks that shocked the nation 10 years ago today devastated few industries as much as the airline business.

In the decade that followed, U.S. air carriers have been battered by a sharp drop in demand, soaring fuel prices, wars, an outbreak of the deadly SARS virus and a stinging recession — forces that have led to billions of dollars in industry losses.

Taxpayers and passengers have also had to pay in cash, delays and frustration: Air passengers shell out $1.8 billion annually in new airline fees to help fund $57 billion in airport security improvements mandated by the federal government over the last decade.


The resulting gantlet of airport screening measures has made flying more time-consuming and burdensome, requiring millions of travelers to shed their shoes and coats at crowded security checkpoints, and to march through high-tech scanners that peer through their clothes.

“I object to the continual escalation of the intrusion in the past 10 years,” said Glen Mowrer, a frequent traveler and retired attorney from Santa Barbara, who echoed the sentiments of many frustrated passengers.

Yet even as the travel industry marks a decade of financial strain, the future seems a bit brighter for airlines. Airline profits have increased marginally over the last year, a reflection of growing demand for air travel and the public’s grudging acceptance of the heightened security measures.

“We, as a company, will never forget that terrible day and the days that followed, but we also strive to move forward with our business,” said Ed Martelle, a spokesman for American Airlines.

Federal officials, airline representatives and travel trade groups have endorsed a new security process that targets high-risk travelers so that frequent fliers can once again speed through airport checkpoints.

“A long line at the airport does not improve security,” said Roger Dow, president of the U.S. Travel Assn., the trade group for the nation’s travel industry.


Financial tailspin

Even before the Sept. 11 attacks, major airlines such as United and American faced declining profits. The primary culprits: rising expenses, excess capacity because of the growth of the airline industry and competition from low-cost carriers like Southwest Airlines.

After the terrorist strikes, the industry went into a financial tailspin.

“We were literally on our knees within one hour,” Dow said.

But the terrorist attacks were only partly to blame for a decade of economic misery.

An outbreak of severe acute respiratory syndrome, or SARS, in Asia cut demand on some international routes and cost the industry billions in revenue in 2003.

Then, starting in 2005, oil prices began to soar, pushing fuel costs up from about 13% of total expenses for most airlines to nearly 40% or more today. Just as airlines were adjusting to the higher fuel prices, the recession struck in 2008, further damping demand for air travel.

As a result, the nation’s 10 largest airlines combined lost an estimated $29 billion between 2001 and the first six months of 2011, according to Robert Herbst, an independent airline analyst.

Airline revenues fell so sharply that by 2005, four of the nation’s five largest carriers — Delta Air Lines, Northwest Airlines, United Airlines and US Airways — filed for bankruptcy protection. This allowed some airlines to renegotiate contracts and costly pension plans, saving them billion of dollars. Still, most of the major national airlines continued to struggle with sluggish demand and rising expenses.

But things are now looking up.

Last year, most of the nation’s largest airlines started to rebound from the recession, with several carriers reporting their biggest earnings in a decade. Profit margins were bolstered by growing travel demand and hefty revenues from extra passenger charges such as baggage fees, most of them added in response to the recession.

Fees levied on passengers to cancel reservations, check luggage and other expenses generated $6.6 billion last year for the nation’s airlines, a nearly 400% increase from the fees collected in 2001.

Average airfares have remained relatively stable, increasing only about 5% from 2001 to 2010. But baggage fees, fuel surcharges and a federally mandated Sept. 11 security fee have bumped up the cost of flying, even doubling the fare on some international routes.

Airlines also have made strategic changes. Several have merged or are in the process of merging — most notably United and Continental, which will operate as one airline by next year. Some carriers have also mothballed unneeded airplanes to save money.

To increase profits, airlines have begun to pack more passengers into each plane. In 2001, the nation’s domestic flights took to the skies with an average of 69% of seats filled. By last year, that rate had grown to a record 82%.

“We are certainly at a much better position to withstand a future shock,” said Steve Lott, a spokesman for the Air Transport Assn., the trade group for the nation’s airlines.

But airlines are not ready to breathe easy.

“This is a highly competitive business and a challenging environment,” said Megan McCarthy, a spokeswoman for United, one of only a handful of carriers willing to comment about the effect of 2001 terrorist attacks on the industry.

“We are positioning ourselves to achieve our long-term goal of sustained and sufficient profitability for the benefit of all of our stakeholders,” she said.

If there is a bright side in this decade of financial woes, it may be the federal government’s huge investment in airport security.

Washington has spent nearly $57 billion over the last 10 years to federalize security forces and to buy an assortment of screening devices that have added new expressions — “nude scanners” and “virtual strip search” among them — to the nation’s lexicon.

The investment has been a boon to technology and security firms that have landed lucrative contracts.

Rapiscan Systems of Torrance, for example, became a prime government contractor, selling federal security authorities nearly 250 body scanners that use low levels of radiation to peek through clothing. The scanners cost as much as $170,000 each.

The company, which also sells X-ray machines and metal detectors, employed fewer than 15 workers in 1993 when it collected about $1 million in sales. Today it employs more than 1,000 workers and generates $300 million in sales.

“I think the last 10 years have been an exciting time for us,” Rapiscan Systems President Ajay Mehra said.

TSA troubles

The addition of tougher security measures in the last decade has also been hard on airline customers.

After the terrorist attacks, the federal government took over commercial airport security through a newly created agency, the Transportation Security Administration.

But the TSA has frustrated passengers with ever-changing rules, imposing new security measures as new terrorist plots have been uncovered. The agency was tied with the Internal Revenue Service near the top of a list of most hated government agencies in a 2007 Associated Press poll.

After “shoe bomber” Richard Reid attempted to ignite explosives on a transatlantic flight in 2001, TSA officials called for shoe inspections at airport security gates. In 2006, after British officials foiled a homegrown terrorist plot to bring down airplanes with liquid explosives, federal authorities limited the amount of liquids that passengers could carry onboard.

The TSA has instituted many other measures as well. As a result, travelers now have to arrive at U.S. airports at least an hour earlier than they once did — removing their shoes, belts and coats for screeners — and march through scanners that can see through clothes.

As the screening process evolved, the TSA suffered some embarrassing episodes.

For example, the agency spent $36 million in 2004 to buy nearly 100 so-called puffer machines that blow air at passengers and then analyze the air for traces of explosives. The machines worked in laboratories but not in airports, where dirty air, vibrations and humidity triggered false alarms, forcing the TSA to discontinue the machines by 2008.

Meanwhile, a TSA watch list that was intended to contain the names of people considered a threat to aviation has snared some prominent travelers. Among them was Catherine Stevens, wife of the late Alaska Sen. Ted Stevens, who made the list because her name resembled Cat Stevens, the pop singer who converted to Islam and changed his name to Yusuf Islam.

Lesser-known travelers also have been affected. Richard Anthony Martinez, a retired Army master sergeant from Florida, said after Sept. 11 he was pulled aside for extra screening each time he entered an airport, even when traveling on military business. “Even when I flew with a group of people, I would be the only one searched,” he said.

Martinez eventually learned that he had been targeted because he shared a name with a much older man with an extensive criminal record. Fed up with the delays and hassles, he legally changed his name in 2006 to Rick Danger, a nickname he earned as a part-time drummer.

“It was very frustrating,” he said. “It taught me a lot of patience.”

TSA spokesman Nico Melendez said the agency had reduced such cases of mistaken identity since it began requiring travelers to provide not only their full name but also their gender and date of birth.

Still, the growing number of security measures have been wearisome for frustrated fliers. A 2010 survey by Consensus Research Group found that 64% of travelers said they would fly more often if security procedures were less intrusive and time-consuming.

TSA Administrator John Pistole acknowledged that there are problems in a system that has screened an estimated 6 billion passengers over the last 10 years.

“Any time you … engage with people 6 billion times, there’s bound to be some things where we could have done a better job,” Pistole said during a recently televised interview with C-Span.

The industry itself has put forward its own solutions, including a “checkpoint of the future” concept that would create a streamlined screening process for passengers who submit background information to the government before flying. Other travelers would undergo more thorough screening, including pat-down searches.

The idea has been endorsed by Pistole and airline representatives. But security experts say the next challenge will be to make the screening process fast and predictable to keep airport lines moving smoothly.

Still, airline officials warn that any future terrorist attack or economic downturn could scuttle the recent revival of air travel, sending the industry into another free fall.

“The industry is climbing out of a very deep hole,” said Lott, the airline trade group spokesman. “But we are not at a point where we are out of the woods yet.”