The Agony of the Airlines


This article remembers key events that have shaped Wall Street history.

Wall Street opened once again for trading on Sept. 17, 2001, after a week of fear and mourning in the wake of terrorist strikes that brought down the World Trade Center's twin towers. No one expected it to be a good day. The Dow (INDEX: ^DJI) would close the day with a loss of 685 points, an all-time record net decline that stood until 2008. Its percentage decline was somewhat more bearable, but the 7.1% drop still stands as one of the worst in Dow history. It was also the busiest day by volume then on record, as 2.3 billion shares traded on the New York Stock Exchange, and 2.2 billion changed hands on the Nasdaq.

The airline industry, supplied by aircraft manufacturers and Dow components Boeing (NYS: BA) and United Technologies (NYS: UTX) , led the slide. Boeing ended the day down nearly 18%, and United Technologies would close with a staggering 28% loss. Airlines themselves fared worse. US Airways (NYS: LCC) lost over half its value and United Continental (NYS: UAL) , then United Airlines, lost 43%. Both companies would enter Chapter 11 bankruptcy by the end of the following year.

The day before, a high-ranking analyst had said that the economy was poised for recovery. That was quickly proven false, as third-quarter GDP shrank by 0.4%, its worst performance in over a decade.

The extent of damage done to the airline industry was staggering. A report by the International Air Transport Association quantified this impact years later. Here are the key details:

  • U.S. passenger traffic declined 5.9% in 2001 over the year-ago period, and fell a further 1.4% in 2002.

  • Global passenger traffic declined by 2.7% in 2001 and did not surpass 2000 levels until 2003.

  • U.S. industry capacity declined for two straight years, a first since World War II.

  • Domestic airline demand suffered a permanent decline after 2001, with revenue per $100 of nominal U.S. GDP falling from $0.82 in 2000 to $0.69 in 2010.

  • Total U.S. domestic capacity remained 4% below 2000 levels a decade later.

  • U.S. airlines only enjoyed three years of industry profitability from 2000 to 2010.

  • U.S. airline employment declined from 520,600 workers in 2000 to 382,900 workers in the first half of 2011.

  • Global airline losses totaled $13 billion in 2001 and $11.3 billion in 2002. The industry did not post a net profit again until 2006, when it earned $5 billion across all carriers.

  • Aviation security is now estimated to cost $7.4 billion each year. This does not account for airport passenger screening expenses borne by taxpayers -- the Transportation Security Administration's budget was $7.8 billion in 2011.

Boeing and United Technologies avoided the airline industry's misery, thanks in no small part to their substantial defense operations. Since Sept. 17, 2001, Boeing has gained 330%, and United Technologies has grown by 152%, both well in excess of the Dow's 52% growth over the same time frame. The government had their backs, so to speak.

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