Terrorism hits Texas travel and tourism
Slump or Bump
The terrorist attacks of September 11 exacted a terrible toll not only in human lives but also on the nation's economic vitality. While the ultimate impact of the disaster cannot be predicted, industries related to travel and tourism already have declined drastically.
Texas is bearing its share of this cost, and while the state has some advantages that may shelter it from the worst of the travel-related crunch, many industry observers believe it may take a year or more for its effects to recede.
Airlines in freefall
The nation's airlines felt the harshest and most immediate economic effects of September 11. This high-cost business traditionally has existed on thin profit margins that were already affected by a slowing economy and rising fuel prices. The temporary shutdown of national air traffic--and the public's understandable reluctance to take to the skies again after the attacks--sent the airlines into free-fall.In September, Congress quickly approved an emergency aid package for air carriers worth $15 billion, including $5 billion in cash grants and another $10 billion in federal loan guarantees. While this legislation helped air carriers remain afloat in the immediate aftermath of the crisis, the travel slump represents a continuing challenge to their existence.
Airlines have responded with a number of cost-cutting measures. Most have reduced their flight schedules, slashed advertising budgets, cut back or eliminated meal service and offered substantial discounts on coach tickets.
The most drastic measure has been substantial layoffs. As of late October, airlines had announced their intention to lay off or furlough about 100,000 U.S. workers. And while Americans are beginning to fly again, air traffic is still down about 30 percent.
Texas air Texas, home to three of the nation's eight largest airlines, has a major stake in this crisis. Fort Worth-based American Airlines felt the impact of September 11 right away; two of the four hijacked airplanes were American's. American Airlines' parent company, AMR Corp., employed 138,000 people worldwide before the crisis. It's the largest single employer in the Dallas-Fort Worth Metroplex area, providing about 31,000 jobs.
The company lost about $1 billion in September. In late October, American planes were flying about 60 percent full, compared to 70 percent in October 2000--and the 60 percent "load factor" was registered after a 20-percent reduction in the airline's flight schedule. Most industry analysts believe that the airlines need load factors of at least 65 percent to break even. AMR still was losing an estimated $10 million to $15 million a day.
Citing "the most serious threat to our survival that we have ever faced," AMR has announced its intention to lay off 20,000 employees. At press time, the layoffs were not yet complete, but company officials acknowledged that the Metroplex may lose from 5,000 to 6,000 jobs.
Houston-based Continental Airlines found itself in much the same position, with traffic plunging even on a reduced number of flights. Continental plans to eliminate about 12,000 positions, although it hopes to limit actual layoffs to about 10,500 by offering early retirements and unpaid leaves of absence. About 3,000 of the cut positions will come from the Houston area, particularly among managerial and clerical employees at corporate headquarters.
Dallas' Southwest Airlines is unique among major air carriers in that it has avoided laying off or furloughing any of its employees, despite a significant drop in passenger volume.
"We have not had a furlough in our 30-year history," says Sherri Hull, Southwest's governmental affairs manager. "We're doing everything we can and we're sacrificing to fulfill our no-furloughs policy,"
Just as impressive is the fact that Southwest actually reported profits in the third quarter of 2001--a feat analysts do not expect any other major airline to match.
Even so, Southwest was losing about $1 million a day in mid-October. Prior to the attacks, Southwest enjoyed load factors of nearly 75 percent; this measure had recovered to about 67 percent by mid-October.
"We're not immune to the crisis," Hull says. "We're still in a cost-cutting mode--everything we do has controlling costs in mind."
The carrier has decided to postpone orders for new aircraft until conditions stabilize. In the meantime, Southwest's famously loyal employees have begun a voluntary program to donate part of their November and December salaries to the airline's bottom line. One potential advantage for Southwest is that US Airways, United and Delta all are eliminating low-cost operations originally created to compete with Southwest's no-frills service.
Of course, other airlines have Texas employees, even if their headquarters are elsewhere.
Atlanta-based Delta Airlines is the second-biggest carrier at D/FW International Airport and has 6,600 employees in North Texas; the company has announced plans to lay off up to 13,000 employees worldwide, but no further details had been announced at press time.
Crunch ripple
Unfortunately, the airline crunch has demonstrated the power of economic "ripple effects." A variety of related businesses are suffering along with the airlines.The elimination of meal service from many flights hit the airline catering industry hard; the AFL-CIO has warned that this trend may cost the nation up to 45,000 jobs. LSG Sky Chefs, a worldwide airline catering firm with U.S. headquarters in Arlington, Texas, employed 16,300 Americans working at 58 airports before the disaster. Since September 11, the company has furloughed 30 percent of its U.S. workforce, while its largest competitor, Gate Gourmet, has let 15 percent go.
Airport shuttle services are hurting, too. Shuttle companies laid off 81 employees at D/FW and another 26 at Austin-Bergstrom International in the wake of the disaster.
By some estimates, D/FW International directly and indirectly supports some 211,000 jobs in the Metroplex. Fortunately, D/FW is better-positioned than many airports, with a high credit rating and manageable debt. To cope with the traffic slowdown, the airport has put $200 million in construction projects on hold, postponed $650 million in bond issues and cut $10 million from its $200 million operating budget.
Austin-Bergstrom International Airport (ABIA) seems to be weathering the storm as well.
"The national average for flight reductions at airports was 20 percent," according to ABIA spokesman Jim Halbrook. "At ABIA, we were well below that average, at about 10 percent. And now we've come back to about normal on the number of flights and, among our larger carriers, passenger traffic is about normal."
Airport businesses didn't escape unscathed according to Halbrook.
"Some of our concessions fell off as much as 60 percent in the two weeks after the attacks, and they lost about half their staff. By mid-October, some of our concessions were reporting sales at or above normal levels. Another positive sign is that on October 18, we resumed our live music performances. We actually have travelers that plan their flights around the music program."
Lodging, tourism down, not out
Consulting firm Accenture predicts that, in the near term at least, the lodging industry will have to cope with a severe cutback in business travel, as well as a smaller number of conferences and conventions. National industry authority Smith Travel Research estimates that the nation's lodging industry lost $700 million in the first 10 days after the attacks. Dallas' Sheraton Park Central closed in October, eliminating 148 jobs, citing the "dramatic decline in travel and tourism."Still other firms related to tourism have been affected as well. As this issue went to press, Fort Worth's Sabre Holdings, a travel technology company, announced it would cut its 6,000-person workforce by up to 600 in 2002.
In general, tourism in Texas is likely to fare better than in other areas. At present, cities that draw visitors by car are much better positioned than destinations that receive most of their visitors by air. Las Vegas and San Francisco, for instance, depend heavily on fly-in tourists, and both cities' travel industries are faring badly. San Antonio, by contrast, estimates that 60 percent of its visitors come from within Texas, and the city is retooling its promotional activities to draw more regional travelers.
Austin is similarly situated. According to Cynthia Maddox of the Austin Convention and Visitors Bureau, 70 percent of Austin's visitors come from within 250 miles of Austin. The University of Texas is a rock-solid draw for tourism.
"We're fortunate to have the university to fill up hotels with its football games and the UT Parent's Weekend," Maddox said, as well as the city's various festivals and musical events. She also noted that, "So far, no one has canceled at the [Austin] convention center."
The question on everyone's minds seems to be: Will travel come back for the holiday season? Some believe travel will resume at a nearly normal pace by the end of 2001; others say that the travel business may take a year to recover the ground it lost on September 11. The travelers will decide, if and when they pack their bags.
Bruce Wright
