One can state with reasonable certainty, that the totality of the economic costs associated with the terrorist attacks of September 11, are simply incomprehensible at this time. We do know the events of “911” have had far reaching impacts upon the private and public sectors in both the USA and abroad. However, we are just now beginning to understand the enormity of these horrific occurrences in terms of the workingmen and women of this country who rely upon the transportation, hospitality, and financial industries for their livelihoods. We have yet to establish a true human cost associated with these events. 

In assessing the economic impacts of “911”to date, there are certain industries and government agencies from which cost and employment data can be reviewed. A summary of these costs and impacts is provided herewith.

The Airline Industry. 

I did find one possible error in my Newsletter contribution for December 1.  In the section dealing with economic impacts to the airline industry, I stated that both Sabena and Swissair went out of business following the September 11 attacks. Actually, Sabena went into bankruptcy and Swissair received a government "bail-out" to keep afloat. Swissair is only working
at about 1/2 of its usual capacity, however. My primary source was in
error. I checked this with the web sites of the impacted airlines.
I suppose that this portion of my analysis can merely say that September 11
has had major impacts upon the financial viability of certain overseas
carriers.
 

The terrorist attacks upon the USA have had a major impact upon an industry that was already expected to lose between $2.5 and $3.5 billion in the year prior to September 11. For example, US Airways announced in August that it expected a $160 million loss for the third quarter. Because of this, the airline stated that a restructuring would be necessary if it were to remain competitive. American Airlines also announced that it would have to ground some of its older aircraft due to actual and anticipated losses. In mid-August, Midway Airlines filed for Chapter 11 bankruptcy, and laid off about 700 workers.

Following the terrorist attacks, the airline industry was impacted by flight curtailments; high overhead costs; and low passenger utilization. Massive lay offs followed, to include Continental (12,000), Delta (13,000), American (11,000), ATA (1,500), and United (11,000), with total expected industry layoffs of 100,000 and projected financial losses of $4.5 billion. Congress then passed an industry assistance package of $15 billion ($5 billion for immediate aid and $10 billion in loans).

Recently, US air travel during the Thanksgiving holiday was estimated to be 1.8 million, as compared to 2.2 million last year. Overall air traffic for October and November of this year is down 25% from the same period as last year. US travel abroad is off 30% from last year. Since September 11, two major overseas carriers have suffered significant losses.  Sabena went into bankruptcy and Swissair received a government "bail-out" to keep afloat but is only working at about 1/2 of its usual capacity

The airlines are major economic forces in the cities that represent both hubs and destinations for business clients and travelers. The impacts of reduced air travel upon such industries as tourism, hospitality, and the plethora of airport workers and supporting infrastructures are enormous.

Sources: (1) Economist.com, November 25, 2001 (“Airlines – The Unpalatable Truth”), and (2) DRI-WEFA, November 9, 2001 (“States Most Affected by Airline Troubles”).
 

The Insurance Industry.

The costs to US insurance companies, and the reinsurance industry, resulting from the terrorist attacks of September 11, are extraordinary. A summary of estimated costs to date are: Berkshire Hathaway ($2.3 billion), Lloyd’s ($1.8 billion), Munich “Re” ($1.8 billion), Swiss “Re” ($1.4 billion), and Allianz ($.9 billion). Warren Buffet of Berkshire Hathaway indicated that losses of up to $1 trillion could result from acts of terrorism. It is evident that the private insurance market may not be able to absorb such costs.

The US House and Senate are currently drafting proposals to make the government the insurer of last resort in such circumstances. In a recent television interview, Lawrence Lindsey, White House Economic Adviser, emphasized the need for a terrorism insurance bill. He opined that beginning in January 2002, a “lot of mortgages” would be in jeopardy without the bill.

Sources: (1) Economist.com, November 25, 2001 (“Cost to Insurers of US Terrorist Attacks”), (2) Fox TV News, November 25, 2001(Interview with Lawrence Lindsey), and (3) New York Times, November 25, 2001.
 

Costs Associated With Federal/State Disaster Assistance.

As of November 19, the Federal Emergency Management Agency (FEMA), US Small Business Administration (SBA) and the State of New York disaster assistance program for the World Trade Center attacks, provided $657 million in relief funds.

In terms of individual assistance, more than $164 million has been approved for grants and loans. FEMA approved $ 17.6 million in disaster housing assistance. The SBA approved $ 118.7 million in low interest loans. Also, crisis-counseling grants in excess of $ 22.7 million were approved.  In addition, FEMA funded more than $ 154 million through other agencies such as the Army Corps of Engineers, Department of Health and Human Services, and Urban Search and Rescue.

Costs to New York City relating to debris removal at “Ground Zero” were $137.1 million as of November 24. 

Since September 11, it was estimated that Homeland Security has cost $ 10 billion.

Sources:  (1) NBC TV News, November 18, 2001, (2) Fox TV News, November 24, 2001, (3) Federal Emergency Management Agency, Disasters: Information on Federally Declared Disasters, November 19, 2001 (“Federal/State Disaster Assistance Tops $657 Million”). 
 

US Unemployment.

Since September 11, many service industry workers who rely upon the airlines for employment lost their jobs. Food and beverage outlets cut 42,000 workers, and hotels laid off 46,000. An anticipated reduction of 100,000 airline workers will further compound this significant period of unemployment in the USA. 

Source: DRI-WEFA Economic Briefings, November 2, 2001 (“Greatest US Employment Loss in 20 Years”).