Air Travel

Economics - Air travel was a commodity with service being the only differentiator. The breakeven load factor was crucial for survival.

* Demand - Demand for air travel was a derived demand. A large proportion of the increase in demand had come from the increase in the number of retirees.

* Cost Factors - Airline costs such as fuel and labor had been rapidly rising prior to 9/11.

* Returns (Yields - RPKs) - There had been a gradual decline in the real value of airline yields as measured by RPKs (the average revenue per passenger kilometer).

* Full Service Carriers (FSCs) - FSCs focused upon networks and differentiated product quality and had an emphasis on providing services to as many cities as possible, with high levels of interconnectivity. The FSC business model entailed high costs; many were fixed, and relied on economies of network size and traffic density to bring unit costs down.

* Low Cost Carriers (LCCs) - LCCs focused upon being the lowest cost leader through providing simple point-to-point services. They had been successfully eroding the FSCs' market share.

* Fragmentation - The global airline industry was highly fragmented.

* Open Markets - Deregulation brought structural changes within the industry. Barriers to entry were removed and prices had fallen. This forced airlines to focus upon reducing costs.

* Hub-and-Spoke - This enabled airlines to service those markets located within the hub-and-spokes with fewer planes, fewer staff and more frequent service. Fortress hubs had emerged.

* Alliances - From alliances, airlines gained the benefits from economies of scope.

However, combining this with the paragraph Some Airline Predictions Before 9/11 would probably lead to conclude that this was not an attractive industry to be in for the FSCs. For example, globally in June 2001, business travel declined 41% from its levels in 2000, with an overall 11% reduction in ticket prices comp