honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser

Posted on: Sunday, September 8, 2002

ONE YEAR, ONE NATION
Attacks crippled travel and tourism industry

 •  Chart: Business sectors see lasting effect of Sept. 11 attakcs

Travel and tourism

Americans have gingerly returned to the skies. But the business of flight remains in a severe downturn.

The number of passengers on domestic and international flights, which had plummeted by a third last September, is down 11.4 percent this year through June, according to the Airline Transport Association, an industry group.

Airlines have partially restored their schedules and called back some of the workers furloughed after the attacks. America West Airlines, which eliminated 2,000 employees after Sept. 11, says it has called back all 1,500 workers still available. But at US Airways, which cut 11,100 jobs, just 1,900 employees have been called back.

Job cuts in aerospace appear even more permanent. Boeing, which has cut nearly 30,000 jobs since Sept. 11, was criticized for saying it may never rehire those workers.

The downturn has hit hotels, restaurants and other tourism businesses hard. At the Grand Canyon, for example, the number of visitors is down 4.2 percent this year, through June. But that figure is tempered by increased car-based travel by Americans. Visits by overseas tourists are down by almost 40 percent at one of the park's entrances.

Insurance

Insurers will pay out $40.2 billion in claims for the damage caused by the attacks, making it the single largest disaster in the liability industry's history. But the impact of the attacks will be felt well after the checks are mailed.

"Insurers are much more cautious about who they're willing to underwrite and how much coverage they're willing to offer, if at all, and in almost every case the cost is higher," said Robert Hartwig, economist for the Insurance Information Institute, an industry group.

Prices for many types of insurance were already rising before the attacks. But costs are now up an average of 25 percent for business coverage like commercial property insurance and worker's compensation, in large part to account for the previously unforeseen risk of terrorism, Hartwig said.

Security and defense

In the weeks immediately after the attacks, Congress approved $40 billion in emergency spending — about $27 billion for defense and domestic security. Businesses also ratcheted up their self-protection efforts, and did so again during the anthrax scare that followed.

But while the immediate crises have faded, and some private security efforts have been scaled back, increased spending on defense and security promises to be one of the most long-lasting effects of the attacks.

Economists point out that while that spending will be a boon for certain industries, it also drains away money that could have been spent on other needs.

In a sign of the cost, Congress approved a $28.9 anti-terrorism bill in July that includes $14.5 billion for the Defense Department and intelligence and $6.7 billion for domestic security.

In the aviation sector, spending on security products — which had been rising about 13 percent a year before the attacks — is likely to surge 27 percent a year through 2005, according to The Freedonia Group, a Cleveland-based research firm.

Most of that money will be provided by government. But business outlays for security will increase significantly, specifically because of concerns raised by the attacks, said Paul Bailin, a security analyst for Freedonia.

"Any kind of high-profile security breach, like the Oklahoma City bombing ... always drives an increase in security spending," Bailin said. "September 11 will show that same trend, but I think in the long term, the effect will be more pronounced."

The attacks should boost the private security industry, which had been growing about 6.5 percent annually, to a 7.5 percent annual growth rate over the next five years, from $45 billion last year to about $65 billion in 2006, Bailin said.

Construction and real estate

The market for new homes remains robust thanks to low interest rates. But the attacks appear to have dampened demand for office space, particularly in high-profile towers, a downturn that was already under way as companies cut back on investment.

Spending on new office construction is down 32 percent for the year through June, and the value of new hotel construction is down 36 percent, according to the Dodge division of McGraw-Hill Construction, which tracks the industry.

"Sept. 11 perhaps did worsen an already deteriorating situation, but it, in and of itself, did not cause it," McGraw-Hill economist Bob Murray said.

Employment

The number of out-of-work Americans began rising well before last September, but the attacks led to even more job cuts. The unemployment rate, which bottomed out at 3.9 percent late in 2000, reached 4.9 percent by September. In the month after the attack, it jumped to 5.4 percent, and it since has climbed to 5.9 percent.

Economists say it is difficult to determine precisely how many of the job cuts can be blamed on the attacks. But in a report issued in February, the Department of Labor said the attacks were either directly or indirectly cited as the cause for 408 mass layoffs that sent home 114,711 workers in the final quarter of last year.

While 33 states reported layoffs tied to the attacks, 56 percent of the jobs cut were in just five states — California, Nevada, Illinois, New York and Texas.