Estimating the impact of recent terrorist attacks in Western Europe The terrorist attacks in Western Europe in late-2015 and early-2016 reduced European airlines’ international passenger traffic by an estimated 1.6% in the following year compared to what would otherwise have happened. We estimate that this reduced European airlines’ 2016 revenues by around US$2.5bln. Nonetheless, by contrast to previous major shock events such as after 9/11, the impact has been only temporary. European carriers were hit the hardest Europe has since fully recovered back to its ‘pre-attacks’ The most visible impact of the terrorist attacks in trend level. Western Europe in late-2015 and early-2016 was on A negative, but temporary, impact on passenger traffic, international RPKs flown by European carriers; such revenues, and profits traffic fell below its trend level following the Paris attacks Overall, we estimate that European airlines’ international in November 2015. Int’l RPKs started to rise again traffic was around 1.6% lower in the year following the immediately afterwards in seasonally adjusted (SA) attacks than it would have been in the absence of such terms, but the upward trend was interrupted following the events. All else equal, we estimate that this reduced Brussels bombing in March 2016. (See Chart 1.) European airline revenues in 2016 by around Given that European airlines’ international traffic US$2.5 billion. accounts for around 24% of industry-wide RPKs, this It is difficult to judge what impact this had at a global impact was felt at a global level too: the SA upward trend level because at least some travel would have been in industry-wide RPKs moderated during H1 2016. displaced. But in the absence of the disruption caused by Chart 1 – European airlines ‘lost’ around 1.6% of int’l terrorist attacks, industry-wide RPK growth may have RPKs in the year following the Paris attacks been up to 0.4 percentage points faster than the 7.4% Int'l RPKs flown by European airlines (billion per month, seasonally adjusted) pace registered in 2016. 150 Providing some longer-term context 140 Actual Trend (early 2009-pre-Paris) Nonetheless, as was the case during the SARS 130 Brussels pandemic in 2003 and the Icelandic ashcloud in 2010, 120 airport the impact on European international passenger traffic Paris attacks bombing (Nov 2015) (Mar 2016) has been temporary. This underlines the resilience of air 110 passenger demand to short-lived shock events. 100 By contrast, as shown in Chart 2, European international 90 Icelandic traffic has been subject to two much larger and crucially ashcloud 80 permanent shocks over the past 25 years or so: one 2010 2011 2012 2013 2014 2015 2016 2017 Source: IATA Economics following 9/11 and the dot-com bust in the early-2000s, and another following the global financial crisis (GFC). European airlines’ international traffic only started recovering fully from June 2016 onwards, when it began Chart 2 – A longer-term perspective Int'l RPKs flown by European airlines (natural logs, seasonally adjusted) growing faster than its trend pace. This was helped by a 20.0 pick-up in global and regional economic conditions, as Actual 19.5 well as broader stimulus from lower airfares. All told, Trend (early 1990s-early 2000s) Trend (early 2000s - mid-2008) 19.0 European airlines’ international traffic had recovered Trend (early 2009-pre-Paris) above its trend level by the end of 2016. 18.5 At a route-level, there is still a lingering impact on the 18.0 Icelandic Europe-Asia market (outbound travel from Asia is known GFC ashcloud 17.5 to be particularly sensitive to shock events); while 9/11 recovering, RPKs flown between Europe and Asia are 17.0 still not back to where they would have been if they had 16.5 followed the SA trend in place ahead of the terrorist 1997 2010 1990 1991 1992 1993 1994 1995 1996 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012 2013 2014 2015 2016 2017 events. By contrast, the level of international travel within Source: IATA Economics European air travel recovered to its pre-9/11 trend Conclusion growth rate between 2002 and 2008 (ie, the slope of the We estimate that the terrorist attacks in Western Europe green line is similar to the slope of the grey line). in late-2015 and early-2016 reduced European airlines’ However, there was a permanent loss of traffic relative to international passenger traffic by around 1.6% in the trend, and the pre-9/11 peak was not passed until following year, compared to what would otherwise have October 2004. happened. We estimate that this reduced European By contrast, the experience following the GFC is airlines’ 2016 revenues by around US$2.5 billion. associated not only with a permanently lower level of Nonetheless, as was the case during the SARS traffic relative to trend, but also a permanently slower pandemic in 2003 and the Icelandic ashcloud in 2010, pace of trend growth. The latter could relate to a range of the impact on European international passenger traffic reasons, both on the demand and the supply side – not has been only temporary. This underlines the resilience least the very weak and fragile economic backdrop seen of air passenger demand to short-lived shock events. By in the region in the years since the GFC. (It is possible contrast, events such as 9/11 and the global financial that the trend pace of growth seen in the early 2000s crisis are associated with permanent impacts on both the was unsustainable too.) trend RPK level and growth rate for European Nonetheless, the key point is that the impact on international traffic. European carriers’ international traffic following the GFC has been permanent, and far exceeds the estimated David Oxley May 2017 temporary impact following the recent terrorist attacks. In fact, international RPKs flown by European airlines remain around 30% lower than where they would have been if they had followed the trend growth path that they were following during the early to mid-2000s. .