Effects of Large-Scale Violent Events on the Demand for International Scheduled Air Traffic
A report by Jurgen Brauer and J. Paul Dunne, commissioned by the Arsenault Family Foundation. It is available as a PDF.
Abstract
The terror attack of 11 September 2001 (“9/11”) on the United States put the threat of deadly violence from large-scale violent events very much in the public eye. The attack carried economic effects, not so much in terms of its direct as in its indirect costs. This suggests that the general level of real or perceived (in)security might have a long-term effects on corporate and industry performance, rather than simply having short-time shock effects that wear off over time.
It is widely thought that one of the affected industries of 9/11 was the global airline industry through the effect of the attack on global air traffic demand for international, scheduled flights. Using data from the International Civil Aviation Organization on various indicators of airline performance and variables derived from the Global Terrorism Database, this Report considers whether this was indeed the case. The main method of study applied is panel data analysis, focusing both on the whole available sample of 443 airlines and on a panel of the 20 largest airline companies. Exploratory case study analysis of a small selection of individual airlines is also undertaken.
We find that when one takes account of potential confounding factors such as the general state of the economy, global air traffic was not greatly affected by the general level of terrorist attacks worldwide, and that it takes a truly exceptional event such as 9/11 to find a measurable impact on air traffic. Even then, the measured effect for the industry as a whole is small in magnitude. The reason for this finding appears to be that the demand for international scheduled air flights is rather heterogeneous across airlines. Aggregating across the whole of the global industry is not in all instances warranted. The industry perhaps overstates the impact of particular large-scale violent events. While specific airlines suffer from specific adverse events, global air traffic demand for the industry as a whole appears fairly resilient to violent shocks.