The Financial Impact of 9.11
9.11 was the beginning of the most challenging decade in aviation history. But it is important to note that the industry was already in a weak financial position. World trade had slowed and the ‘dot.com bubble’ had burst the year earlier. Global airline profits had fallen from $8.5 billion in 1999 to $3.7 billion in 2000.
US Impact
- Air Space Closed: On September 10, 2001, US airports handled 38,047 flights. On September 12, they handled 252 commercial flights. One week later (September 18) there were 34,743 flights.
- Passenger Traffic: US passenger traffic, measured by revenue passenger kilometers (number of travelers multiplied by the distance traveled) declined 5.9% in 2001 (compared to 2000) and a further 1.4% in 2002. Airlines struggled to match this decline by cutting capacity (available seat kilometers or number of seats multiplied by distance traveled) by 2.8% in 2001 and a further 3.9% in 2002. This was the first time since World War II that industry capacity declined for two consecutive years. After stabilizing in 2003, capacity growth resumed in 2004 and continued until 2008, when it declined again owing to soaring oil prices and the global financial crisis. Capacity fell further in 2009, returning virtually to 2000 levels. Between 2000 and 2009, the US commercial aircraft fleet shrank by around 700 units.
- Domestic Market: “The events of 9.11 … marked a permanent decline in [US] domestic airline demand” — Barclays Capital, February 2009. Total domestic operating revenue per $100 of nominal US GDP declined from around US$0.823 in 2000 to US$0.687 in 2010, representing a shortfall of $18 billion for 2010 and $142 billion for the 2001-2010 period. Passengers found alternatives to short-haul travel to avoid the security hassles at airports. Network carriers shed their domestic operations to regional airline codeshare partners. The regional airline share of domestic departures grew from 40% in 2000 to more than 50% by 2010. Total US domestic capacity in 2010 was 4% below the level in 2000.
- Financial Performance: US airline revenues fell from $130.2 billion in 2000 to $107.1 billion in 2002. Losses of $19.6 billion were reported in 2001-2002. Losses for 2001-2005 totaled $57.7 billion. US carriers returned to profit in 2006-2007 ($25.9 billion), but soaring oil prices and the global financial crisis pushed them into losses of $26.4 billion in 2008-09. US airlines earned $3.6 billion in 2010, only their third year of profit since 2000. Between December 2002 and October 2005 United, Delta, Northwest and US Airways filed for Chapter 11 bankruptcy reorganization.
- Employment: In 2000, US passenger airlines employed 520,600 workers. By 2003, this had fallen 14.6% to 444,700. Employment levels continued to decline each year through 2010 (378,100) before climbing in the first half of 2011 to 382,900.
- Government Compensation: On September 23, 2001, the US Air Transportation Safety and System Stabilization Act became law, providing US airlines with $5 billion in compensation (for losses incurred during the 9.11 shutdown and incremental losses sustained through 31 December 2001) and $10 billion in future loan guarantees.
Global Impact
- Traffic: Global passenger traffic (tonne kilometers performed) declined by 2.7% in 2001. Traffic did not surpass the 2000 level until 2003. It continued to rise until 2009 when, owing to the global financial crisis, it declined 2.1% year-on-year.
- Revenues: Global airline revenues declined from $329 billion in 2000 to $307 billion in 2001 and further to $306 billion in 2002. Revenues rebounded to $322 billion in 2003 and then to $379 billion in 2004. The next revenue dip was in 2009 when they fell $82 billion to $482 billion. In percentage terms this 14% drop was more than twice the decline experienced in 2001-2.
- Profitability: Airlines lost $13 billion in 2001 and a further $11.3 billion in 2002. The industry recorded its first post-September 11 annual profit in 2006 ($5 billion), and earned $14.7 billion in 2007. The following year rising oil prices and the global financial crisis plunged airlines back into the red with 2008-9 total losses of $25.9 billion.
- Bankruptcies: Within months of the attacks, Swissair and Sabena went bankrupt as the 9.11 shock pushed these financially weak carriers into collapse.
- Oil price: In the decade since 9.11 the industry fuel bill rose from 13% of costs (2001) to 30% (projected for 2011).