Why political and legal factors impact the airline industry

Political and legal factors that impact the airline industry

The airline industry is widely impacted by regulations and restrictions related to international trade, tax policy, and competition. It’s also impacted by issues like war, terrorism, and the outbreak of diseases—such as Ebola. These issues are political. As a result, they require government intervention. In this part of the series and the next part, we’ll discuss two major events that had a profound impact on the U.S. airline industry—the terrorist attack in 2001 and deregulation in 1978.

Financial impact of September 11, 2001, on the airline industry

All companies in the airline industry—including the top U.S. companies like Delta (DAL), United (UAL), American (AAL), Southwest (LUV) and JetBlue (JBLU)—were negatively impacted by the 2001 terror attack. According to the International Air Transport Association (or IATA), the financial impact on the global and U.S. industry are as follows:

• It took three years for the global airline industry to recover the 6% decline in revenue between 2000 and 2001. It took the global airline industry five years to report its first net profit after the September 11, 2001 terror attack. Revenue declined by $22 billion—to $307 billion in 2001—from $329 billion in 2000. In 2001, the global airline industry recorded losses of $13 billion. It reported its first profit of $5 billion in 2006 after four consecutive years of losses. Financially weak carriers even went into bankruptcy during the period.
• The U.S. airline industry revenue decreased to $107.1 billion in 2002 from $130.2 billion in 2000. Passenger traffic decreased by 5.9% year-over-year (or YoY) in 2001 and 1.4% in 2002. To match the reduced demand, airlines were forced to cut capacity by 2.8% in 2001 and 3.9% in 2002.