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Us Airline Industry

Essay by   •  September 6, 2011  •  Research Paper  •  581 Words (3 Pages)  •  1,295 Views

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Although the US airline industry began 2001 with 24 consecutive profitable quarters, including net profits in 2000 totaling $7.9 billion, the impact of the 9/11 event on the industry was substantial. Whereas the recession that began in early 2001 signaled the end of profitability, the 9/11 terrorist attacks pushed the industry into financial crisis after air travel dropped 20% over the September-December 2001 period compared to the same period in 2000. Given the decline in domestic air travel, an important question is whether the detrimental impact of the attacks was temporary or permanent. That is, did airline travel return to the trend that existed prior to the terrorist attacks? There are theoretical reasons to the believe that it would not. Economists have long viewed travel-mode choices as the outcome of a comparison of opportunity costs and benefits. Thus, anything that permanently raises the opportunity cost of travel, holding benefits constant, should reduce the level of travel volume. To determine whether air travel was permanently reduced, we use econometric and time-series forecasting models to generate a counter-factual forecast of air travel volume in the absence of the terrorist attacks. These dynamic forecasts are compared to actual air travel levels to determine the impact of the terrorist attacks. The findings suggest that domestic air travel did not return to the levels that would have existed in the absence of the attack.

The terror attacks of September 11, 2001 had an immediate and substantial impact

on international travel worldwide. The attacks induced substitution away from air travel

generally and caused a shift in the preferences of travelers for particular destinations. The

United States in particular experienced an immediate and precipitous drop in arrivals of

international visitors, particularly from those flying in from overseas. The initial drop in

arrivals immediately following 9/11 in part reflected widespread concern about the safety of

international air travel. Economic factors most likely also played a role in reducing travel to

the United States in the aftermath of 9/11. Between 2001 and 2002, for example, the global

economy experienced a recession that reduced demand for air travel generally. In addition to

safety concerns and deteriorating economic conditions, the perception that U.S. visa policy

became more restrictive in the wake of 9/11 may also have negatively impacted arrivals. Such

perceptions prompted concern within the travel industry that the United States

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