Journal of Air Transport Management 10 (2004) 327–332 US Commercial airline performance after September 11, 2001: decomposing the effect of the terrorist attack from macroeconomic influences Vitaly S. Guzhva a , Notis Pagiavlas b, * a Department of Finance, College of Business Administration, University of Central Florida, P.O. Box 161400, Orlando, FL 32816-1400, USA b Department of Management, Marketing, Strategy and Operations, College of Business, Embry-Riddle Aeronautical University, 600 S. Clyde Morris Blvd, Daytona Beach, FL 32114-3900, USA Abstract The US airlines’ revenue passenger miles series are examined to objectively assess the effect of the September 11th terrorist attack on the performance of the industry controlling for the general economic conditions. A Vector Autoregression model (VAR) with revenue passenger mile and real gross domestic product series is utilized. The estimated effect of the attack supports the federal government’s appropriation of $5 billion cash compensation to the airlines. Analysis at the individual air carrier level confirms that not all the US major and regional airlines were affected in the same manner. United, Northwest, US Airways, and Delta account for more than 63% of the aggregate decline in the US airline industry performance. Three air carriers: JetBlue, Aloha and Atlantic Southeast were able to significantly improve their performance immediately following the September 11th attack. r 2004 Elsevier Ltd. All rights reserved. Keywords: US airlines; Vector autoregression model; Terrorist attack; Impact effect 1. Introduction The tragic events of September 11th, 2001 have produced a plethora of studies and manuscripts examining the effects of the attack especially as it affected commercial aviation. However, one question remains unanswered by academic researchers and industry practitioners. What was the precise ‘‘net’’ effect of the attack on an industry that by September 10th, 2001 was already in a severe downturn, manifested in declines across all considerable measures of passenger traffic and revenues? On September 22, 2001 President Bush signed into law the Air Transportation Safety and System Stabiliza- tion Act (ATSSSA), that provided $5 billion in cash compensation to the airlines and up to an additional $10 billion became available in loan guarantees to maintain the solvency of air carriers and the continued operation of the air transportation system. Yet, despite the substantial government assistance, the US airlines posted total losses of $17.7 billion in 2001 and 2002 (Arndt and Zellner, 2003). More recently, the Congress has approved the provision of more than $3 billion in aid to compensate for losses caused by the war in Iraq (Economist, 2003). However, it could be argued that the US airlines used terrorism as a convenient excuse to mask internal problems, primarily high and uncompe- titive costs among ‘‘legacy’’ carriers 1 stemming from union contracts in particular. The purpose of this manuscript is to ‘‘decompose’’ the impact of the September 11th terrorist act on the performance of the US airlines from the general economic environment. We utilize an objective perfor- mance indicator—series of revenue passenger miles (RPM) analyzed by vector autoregression model (VAR), incorporating Real Gross Domestic Product (RGDP) data as a key macroeconomic indicator. The model utilizes quarterly RPMs as an industry standard ARTICLE IN PRESS *Corresponding author. Tel.: +1-386-226-4965; fax: 1-386-226- 6696. E-mail addresses: vitaly.guzhva@bus.ucf.edu (V.S. Guzhva), notis.pagiavlas@erau.edu (N. Pagiavlas). 1 American Airlines, United, Delta, Northwest, etc. 0969-6997/$-see front matter r 2004 Elsevier Ltd. All rights reserved. doi:10.1016/j.jairtraman.2004.05.002