If one industry has been most affected by the events of September 11, it is the U.S. airline industry. Already in serious financial trouble before the terrorist attacks, the steep decline in airline travel since then and the increased aggravation of flying continues to depress the industry. After a 50% decline in the weeks immediately after September 11, airline travel is still off 25%, according to the latest industry figures.
The terrorist attacks caused both United Airlines and American Airlines to change their advertising campaigns. On October 16, United expanded and modified its "We Are United" spots with a more "upbeat" tone, and planned to continue them into early November using the World Series as one major venue. American rolled out a campaign featuring a fare sale called "The Great American Get-Together" promoting the extension of double frequent-flyer miles.
5.2 Price Discrimination
The U.S. airline industry relies heavily on a sophisticated form of price discrimination called revenue management. Revenue management systems allow airlines to use historical data on load factors on a flight as well as real time load factors to adjust prices for different classes of fares. This results in different customers paying different prices based on the time and even the channel of purchase, apart from the fare class. While many observers would disagree with the practice of an airline seat being sold at widely different prices, many researchers argue that airlines cannot be profitable unless they do so. It is also argued that, if price discrimination was banned and airlines were forced to offer the same price, many airlines might suffer losses and some might even stop flying. If this is true, this may have a contrary effect of making consumers, who could have paid higher prices, worse off. This is another example of how noncompetitive practices like price discrimination can lead to an efficient equilibrium.
5.3 Long-term Contracts/Deferred Rebates...