The effect of 9/11 on the airline industry ECON 240C – Project 2 Hao Jin ChingChi Huang Bryan Watson Vineet Sharma Hilde Hesjedal

The effect of 9/11 on the airline industry After the incident on sep. 11. the revenue per passenger miles dropped $22.5 billion within just one month. After the incident on sep. 11. the revenue per passenger miles dropped $22.5 billion within just one month. This paper look into how much the drop actually was if we correct for time trend and seasonality and other econometrical issues. This paper look into how much the drop actually was if we correct for time trend and seasonality and other econometrical issues.

The effect of 9/11 on the airline industry The airline industry have gone from being reasonable profitable to tough and turbulent with low margins and high losses The airline industry have gone from being reasonable profitable to tough and turbulent with low margins and high losses Can the incident on sep. 11 be the reason for some of the difficulties the industry is facing today? Can the incident on sep. 11 be the reason for some of the difficulties the industry is facing today?

Revenue Passenger Miles Definition “Revenue Passenger Miles”: One revenue passenger transported one mile in revenue service. Revenue passenger miles are computed by the summation of the products of the revenue aircraft miles flown on each inter-airport hop multiplied by the number of revenue passengers carried on that hop. Definition “Revenue Passenger Miles”: One revenue passenger transported one mile in revenue service. Revenue passenger miles are computed by the summation of the products of the revenue aircraft miles flown on each inter-airport hop multiplied by the number of revenue passengers carried on that hop.

The effect of 9/11 on the airline industry There are various reasons for the difficulties within the business, however we have examined the revenue passenger miles in the U.S. from 1996 and onwards and looked at the effect the incident on September 11 had on total revenue in the industry. There are various reasons for the difficulties within the business, however we have examined the revenue passenger miles in the U.S. from 1996 and onwards and looked at the effect the incident on September 11 had on total revenue in the industry.

Revenue Passenger Miles

First Differenced Series

Seasonal&First Differenced Series

Unit Root Test

ARMA Model

Modeling the Event Step function Step function

Conditional Heteroskedasticity ARCH Test

Correlogram of Residual Square

Add ARCH(1) and GARCH(1)

Add ARCH(1),GARCH(1) and GARCH(2)

The series is more noisy right after 9/11

Forecast

Re-coloring

95% Confidence Interval

Conclusion The loss directly associated with 9/11 is $12.8 billion (instead of $22.5). The loss directly associated with 9/11 is $12.8 billion (instead of $22.5). The total revenue in the industry today would most likely have been higher if not for the incident. The total revenue in the industry today would most likely have been higher if not for the incident. However, other factors have also influenced the airline industry. However, other factors have also influenced the airline industry.