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Tighter security could cost airlines if travel demand drops
January 05, 2010

U.S. airlines could lose hundreds of millions of dollars in revenue and foregone profit if even a small percentage of would-be travelers stay home rather than face tighter airport and airline security, some analysts warn. "A 1% drop in demand would be equal to a revenue hit of more than $1 billion," says analyst Vaughn Cordle at AirlineForecasts. "And because airlines are so highly leveraged, nearly all of that would come off their profit bottom lines."

A 1% drop in demand is equal to just two or three passengers staying off every flight. And that shows how fragile the profit-and-loss picture is for an industry in which a group of 10 big U.S. airlines has lost about $60 billion over the last nine years. Cordle, for instance, predicted the 10 big domestic airlines would earn a meager $1.5 billion in 2010 before security measures were tightened following the Christmas Day bombing attempt of a Delta jet landing at Detroit.

The good news for airlines, however, is consumers often adjust to new threats and to new security procedures fairly quickly. Travel typically rebounds after an initial drop-off following a highly publicized attack. "There'll be some impact (on travel demand) because people are just that way," says travel agent Steve Cosgrove, owner of Dynamic Travel in Southlake, Texas, near Dallas/Fort Worth International Airport. "But they'll get over it and start flying again pretty soon. Some will be nervous and say it's not worth it. They'll be worried another crotch bomber is on their flight. But most people who need to fly will continue to fly."

Cordle agrees. Plus, he says, "There's some pent-up demand (for air travel) that should help airlines in 2010. "The stock market continues to rebound, and the general wealth effect during an economic recovery also is in the airlines' favor," he says. "Consumers should have more money in their pockets in 2010 than they did in 2009, and some of that extra money should get spent on travel."

One good sign for the airlines: Preliminary results from a survey of corporate travel managers done for the National Business Travel Association indicates that only 42% say the failed Christmas Day attack raised new safety concerns for them. And 82% say their companies won't reduce travel because of it. Only 2% said they would cut back on travel that would be on international trips.

Source :- http://www.usatoday.com