$5 Billion Was Just About Right, Study Says
The $5 billion
allocated by the federal government to compensate U.S. commercial
airlines for lost revenue after the Sept. 11, 2001, terrorist
attack was amazingly close to the actual financial setbacks the
airlines sustained, according to two researchers in the College of
Business at Embry-Riddle Aeronautical University.
In a study published in the Journal of Air Transport Management
(2004, issue 10, pages 327-332), Drs. Notis Pagiavlas and Vitaly
Guzhva separated the effect of the attack from other economic
forces that impacted the airline industry. Using the statistical
model of vector auto-regression, they determined that the net
effect of the attack was approximately $5.4 billion, caused mainly
by the immediate grounding of flights and reduced schedules.
"We entered the study
with mere academic curiosity and ended up finding strong evidence
for an accurate financial allocation by the president and the
Congress," says Pagiavlas. "Our results were unexpected and very
surprising, given the quickness with which the government decided
on the relief packages of $5 billion in direct compensation and $10
billion in loan guarantees."
In their study, the researchers first examined the quarterly
revenue passenger miles (RPM is a standard measure of airline
performance), for the period of 1977 to 2003 as reported by the US
Department of Transportation. Next, mathematical diagnostic
evaluations of the data resulted in an estimated baseline
historical performance that accounted for strong seasonal
variations in the pattern of analysis. The net effect of the
terrorist attack was then estimated by statistically isolating the
effects of the broader macroeconomic conditions, reflected in the
real gross domestic product, from the attack.
"The 'detrended' and seasonally adjusted data provided
compelling statistical evidence for the economic impact of the
terrorist event," Pagiavlas says. "We also found that the financial
shock on the airline industry diminished by the end of the data
range in 2003."
The title of the study is "U.S. Commercial Airline Performance
after September 11, 2001: Decomposing the Effect of the Terrorist
Attack from Macroeconomic Influences."
Both researchers are assistant professors: Pagiavlas in the
Management, Marketing, Strategy, and Operations Dept., and Guzhva
in the Economics, Finance, Accounting, and Risk Management
Dept.