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New terror attack could be costly for airlines

An arrival board at the Los Angeles Airport 11 Sep
An arrival board at the Los Angeles Airport displays canceled flights on Sept. 11, 2001. The terrorist attacks that day probably cost the U.S. air travel industry more than $200 billion.Gerard Burkhart / AFP-Getty Images file
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The terrorist attacks on the U.S. commercial aviation system on Sept. 11, 2001, probably cost the U.S. air travel industry and associated businesses well over $200 billion, according to researchers from the University of Southern California.

Another terrorist attack against U.S. airlines would cost the air travel industry anywhere from $214 billion to $420 billion, the USC researchers concluded in a paper entitled "The Economic Impacts of a Terrorist Attack on the U.S. Commercial Aviation System." The paper appears in the latest issue of the peer-reviewed journal Risk Analysis, published by the McLean, Va.-based Society for Risk Analysis.

In their study, which was partly funded by the Department of Homeland Security, the USC researchers modeled the effects on the U.S. economy of a seven-day shutdown of the country's air transport system after a terrorist attack, followed by a two-year period of traffic recovery.

The study hypothesized attacks using a man-portable air defense system (MANPADS, more commonly known as shoulder-launched anti-aircraft missiles) against one or more U.S. airliners within the United States.

The scientists didn't directly calculate the full economic cost to the air travel industry of the Sept. 11 attacks themselves, though they noted that "a full accounting of the economic costs has, to our knowledge, not been done."

But because they based their calculations on U.S. economic and air traffic data for the three years following the Sept. 11, 2001, aircraft hijackings, the estimated economic impact of a new terrorist attack provides a "pretty close" idea of how much the Sept. 11 attacks themselves cost the travel industry, said James Moore, one of the researchers.

"Yes, this would be a reasonable calculation of the cost of what the (travel) economy experienced after 9/11," said Moore, chair of the Daniel J. Epstein Department of Industrial and Systems Engineering at USC State Capitol Center in Sacramento, Calif.

The researchers assumed that a new terrorist attack using shoulder-launched missiles against U.S. airliners would shut down the U.S. air transport system for seven days, but the U.S. government closed down the system for just four days after the Sept. 11 attacks.

"It is reasonable that the shutdown in this (MANPADS) type of attack would be longer because the protection against future attacks would require not only controlling who gets on planes but also a search of the areas surrounding airports and the installation of stronger protective and security services at or near airport perimeters," the scientists wrote.

However, "the length of the initial shutdown is not really a big part of the picture," said Moore. "The big cost after 9/11 was the very slow rebound of the industry, with less use of air transport industry goods and services."

In fact, wrote the USC researchers, "95 percent of the total impact of the attack is likely to occur in the post-shutdown period."

Over two years, the direct loss in revenues to the U.S. airline business of a new terrorist attack would be $43.65 billion, the researchers calculated. This is very close to the total net loss that the Air Transport Association estimated the U.S. airline industry incurred in the 2001-2005 period, before the industry returned to profitability in 2006 — though Moore said the USC scientists did not use the ATA estimate in performing their calculations.

Their lost-revenue estimate assumes that transport of air freight would return to normal immediately after the seven-day shutdown, but that passenger traffic would take two years to return to pre-attack levels, as happened after 9/11. They estimated the average cost of a domestic ticket at $325, and of an international ticket $667.

But the economic impacts go much deeper. The airline industry uses goods and services from other business sectors. This demand for goods and services from airlines stimulates these businesses' own use of the air transport system, said Moore.

Additionally, U.S. businesses need to use the air transport system in many other ways to stimulate their growth. "There's a web of relationships," and these create multiplying effects economically, he said.

One industry that the USC researchers thought would do well during a post-terrorism U.S. airline reversal is telecommunications, which they estimated would see as much as $19.5 billion in extra revenue in the two years following an attack.

Yet the estimate of an overall negative impact of $214 billion to $420 billion might be conservative. If the U.S. public took longer than two years to become as willing to travel by air as it had been before the attack, "losses would mount up and this could damage the (airline) industry," perhaps irrevocably, said Moore.

"Suppose the traveling public was skeptical that the government could not guarantee the safety of air travel. I would imagine it would be destructive for the industry," he said. "I think everyone understands the industry is in some ways very fragile financially."

Equipping the entire U.S airliner fleet with countermeasures against portable anti-aircraft missiles would cost anywhere from $10 billion to $100 billion, the USC researchers estimated. The actual equipment cost would be $10 billion to $20 billion, but since "some countermeasures deteriorate quickly and must be replaced frequently," continuing costs could total an additional $5 billion to $10 billion annually.

But equipping the U.S. fleet with anti-missile countermeasures might well be worth the cost, they concluded.

The 9/11 terrorist offensive "was a very expensive event" for the United States, said Moore. But "it is possible for events to happen that are even more expensive. It's in everybody's interest to avoid impacts (from terrorist attacks). The entire exercise was intended to focus on, what costs do we avoid, and what do we have to lay out?"