Financial cost of attacks already in tens of billions
By BRUCE LITTLE
ECONOMICS REPORTER; With files from news wires
Friday, September 14, 2001
After the horror come the dollar signs.
Yesterday, industries and governments worldwide were totting up the financial costs of Tuesday's terrorist attacks in the United States.
Already, the sums -- which are certain to grow in the months ahead -- are enormous: $20-billion (U.S.) in new spending by the U.S. government; insurance claims that might be counted in the tens of billions of dollars; $10-billion in losses for airlines this year; uncountable losses for the world's tourism industry.
And, so far, no one has even started to estimate the eventual cost of the added security steps that airports and airlines are expected to take in the months ahead, measures that will add a permanent new layer of costs to travellers everywhere.
Martine Malka, a Montreal-based spokesperson for the International Air Transport Association, said new security costs for the airlines alone -- which IATA represents -- cannot be estimated because "we don't know what the FAA [U.S. Federal Aviation Administration] will be requesting."
Airports will also face stiff new costs for added security.
"The idea that our national security should depend on minimum-wage screeners is absolutely ludicrous," said Paul Hudson, director of the Aviation Consumer Action Project, a group affiliated with consumer advocate Ralph Nader.
But it will be months before the cost of such measures -- not only in the United States, but worldwide -- become clear.
Already, though, the fallout from Tuesday's attacks is acquiring a price tag.
U.S. President George W. Bush yesterday asked Congress for $20-billion in emergency funds to finance the recovery effort and said he would ask for more if needed.
That more money might be necessary went almost without saying. "The number . . . will be bigger in the end," said Representative David Obey of Wisconsin, the senior Democrat on the House Appropriations Committee.
Senate Majority Leader Tom Daschle called the $20-billion "a minimal down payment" on a range of needs, including stepped-up counterintelligence and military preparedness, extra security at airports and other transit centres, funds to apprehend and prosecute the perpetrators of Tuesday's attacks, and extended help for New York.
The global tourism industry is bracing for its worst setback since the Persian Gulf war in 1991, when overseas travel by Americans, in particular, plummeted.
That year, the number of U.S. visitors to Britain alone fell one-third and stayed below 1990 levels until 1995.
The World Tourism Organization in Madrid said yesterday that it was too soon to try to gauge the cost of this week's carnage in the United States, but customers on both sides of the Atlantic already have begun to cancel bookings.
"The nearest similar event was the gulf war in '91," said Phil Davies, editor of the Travel Trade Gazette in London. "At that time, billions of dollars were lost. Airlines suffered hugely. The American public just stopped travelling internationally."
The gulf war also affected Canadian travellers. In 1991, they took 10 per cent fewer overseas trips than in 1990, according to Statistics Canada.
Yesterday, Fairmont Hotels & Resorts Inc. warned that the hotel industry -- and the company -- likely will be hurt by reduced travel following the terrorist attacks in the United States. Fairmont, soon to be spun off from its parent company, Calgary-based conglomerate Canadian Pacific Ltd., said it "may take several weeks before the full impact of this week's events can be assessed."
The world's airlines have taken a huge hit in both revenue losses and extra costs, according to IATA. Losses could hit $10-billion simply for this week, an official said.
Trip cancellations, the cost of increased security, refunds and a decrease in bookings for the rest of the year are all expected to put additional burdens on the industry.
About 4,000 of the world's 12,000 commercial airliners were grounded after four commercial jets were hijacked in the attacks. U.S. air space was essentially closed and is only now reopening to commercial traffic on a case-by-case basis.
IATA estimates that the U.S. market alone is worth about $1-billion a day in revenue, but said the slowdown in Canadian and Mexican markets as well as in transpacific and transatlantic traffic also must be taken into account.
Last year, IATA's members made a profit of $2.8-billion on their international services, up slightly from 1999. The world's airlines suffered heavy losses in the 1990-94 period, especially after the gulf war. In 1992 alone, they reported combined losses of $7.5-billion, IATA said.
On Wednesday, Midway Airlines Corp., which had filed for bankruptcy protection a month ago, suspended all flights and fired 1,700 workers, giving up its attempt to restructure. The airline, based in Raleigh, N.C., said it doesn't have the resources to reorganize if demand plunges.
Raymond Neidl, an ABN Amro analyst, said the terrorist attacks will "turn what was to be a bad year for the airlines into a very, very bad year." Noting the decline in leisure travel that occurred during and after the gulf war, he said "this is much bigger than that."
Insurance companies face a bill of $10-billion to $15-billion to cover claims, Jacques Blondeau, chief executive officer of the French reinsurance group Scor said yesterday, although Britain's financial watchdog, the Financial Services Authority, said it was "too soon to say anything about the costs."
Some experts have begun to put the number even higher -- at $20-billion or even $30-billion.
At that level, the numbers would exceed the $20-billion paid out in the wake of Hurricane Andrew in 1992, perhaps the costliest catastrophe on record.
Already, however, there are indications that settling insurance claims could be a messy affair, one that will wind up in the courts and take years to sort out.
Some experts said the unprecedented nature of the attacks has raised questions about liability -- whether the buck should stop with the airlines or airports, airport security firms or the U.S. government.
"Are the aviators responsible through their liability policies for the building damage?" Robert Hiscox, chairman of Lloyd's of London underwriter Hiscox PLC, told Reuters.
"Nothing is clear. There is no legal precedent for how it's paid."