e-zine edition, Issue 23
When Pan Am Flight 103 crashednear Lockerbie, Scotland, December1988, killing 270 people, it was theworst act of terrorism ever in the airtransport industry. After September11, 2001, it almost appears as afootnote in history. People no longerconsidered air transport as a safe wayof travelling and demand for airtransport services expressed bypassengers decreased enormously.Airlines responded by cutting capacityand lowering prices of their services.This resulted in better load factors, butstill yield is very low. This articledemonstrates that airports have amajor stake in the airlines’ struggle toovercome the effects of September 11on profitability. The explanation of this statement is found in a simpletotal cost based model of optimumplane size.Airports and airlines serve the end-user by means of a sophisticatedsystem of relations. After the airborneattacks on WTC and Pentagonbuildings, air transport faces someserious problems. Intensified securitymeasures at airports after September11, are affecting the relation betweenairlines and airports. A total costbased model of optimum plane size,shows that after the events of September 11 the optimal plane sizecould have decreased.Together airports and airlines servecustomers in a system of complementary services. Actually, theend – user is a customer of the airportand the airline simultaneously. Theconsumer uses the air transportservice provided by the airline. In thisservice, ground handling activities andflying are melted to one integratedservice. The increased hassle and timecosts at the airports makes the airtransport service less attractive. AfterSeptember 11, people are moresensitive for travel time. In economicterms, the time elasticity of demand isnow higher than before September 11.The awareness of the consumer’seffort makes time being recognized asa major input of passengers in theconsumption of air transport services.Especially for frequent flyers, theincreased time costs for the passenger(user cost) resulted in an alternativemode choice for short distancetravelling. A change in the modal splitseems to be one of the effects onshorter travel distances.The airlines’ reaction on thedecreasing demand of air transportwas to cut capacity andoffer flights for very lowprices. Cutting capacitymeans flying lessfrequent. It is commonlyassumed that demandreacts rather in-elasticallyto frequency offered. Thefirst effect thus was thatload factors rose. On theother hand, price warsemerged. Therefore,yields decreased. Atairports, the increasingsecurity measures resultedinto increasing groundhandling capacityutilization. Their reactionwas tocharge morefor theirservices tocover theincreasedsecuritycosts.BeforeSeptember11, the costsof securitycheckingused to be apart of thenegotiationsbetween airlines and airports. Thesecosts have therefore never been‘visible’ for passengers. To cover theextremely increased security costsafter September 11 the ‘internalcharacter’ of these costs changed into‘external’. Security surcharges arenow sometimes charged to passengersdirectly. Costs are passed on to thecustomers and are no longer in controlof airlines. Beside uncertainty intravel time, passengers are now alsoconfronted wit uncertainty in terms of ‘money’. Airports are more and morein the driver’s seat regarding thedefinition of the total level of serviceto passengers, whereas in former daysthe airlines were. If airports only careabout covering costs and do nothingto improve their services, in the longterm this policy will have negativeeffects for airlines and for airports.Some of these negative effects can beexplained by a total cost based modelof optimum plane size.
Some effects of intensifiedsecurity and safety procedureson airports and airlines
The case of decreasing optimum airplane size
By H.B. Roos and B. van Herwijnen Eramus University Rotterdam
September 11, 2001 led to cancellations and intensified security