Business costs mount

September 12, 2001: 8:11 p.m. ET

Corporate America faces lost sales and long-term fallout
By Peter Valdes-Dapena

NEW YORK (CNNfn) - From lost output at Ford Motor -- which shut down many production shifts on Wednesday -- to the billions of dollars insurance companies will face in claims, the financial costs to Corporate America of Tuesday's terrorist attacks are sure to be enormous. Here's a look at which industries are suffering the most.

Airlines
One of the biggest victims, of course, is the airline industry. The Federal Aviation Administration has suspended all commercial flights, and it is widely anticipated that consumers and businesses will dramatically cut back on travel plans.

Deutsche Bank said Wednesday that it had banned its employees from business travel anywhere in the world, and Kevin Mitchell, chairman of the Business Travel Coalition, told Reuters he had surveyed about 300 travel managers who were discussing plans to halt travel throughout the week.

The result will be hundreds of millions of dollars a day in foregone sales, and losses will likely "significantly exceed" the $2 billion dollar annual loss the industry posted the year of the Gulf War, one analyst said.

Midway Airlines, already staggered by financial problems, said Wednesday it will go out of business rather than try to rebuild amid the fallout from this week's destruction.

"Typically, when you have an air disaster, travel falls off for a week or 10 days," said Kevin Mitchell. "This is mind-boggling on a number of levels."

Financial Services
One of the main targets of Tuesday's attack stood high in the midst of New York City's financial district. Not only were investment banking companies with offices in the destroyed World Trade Center affected -- including Morgan Stanley and Cantor Fitzgerald -- but closed markets has meant lost businesses for all financial services companies.

No hard figures were available regarding the cost of lost business, but the securities industry generated more than $300 billion of revenue in the United States last year, according the Securities Industry Association, and an additional $110 billion overseas.

Of course, business won't be shuttered for long. Larry Tabb, vice president, securities and investment practice, Towers Research Group, expects no problems when trading resumes, because all the securities companies that were actually in the tower itself had real-time off-site back-up systems.

What may effect brokerage companies more, in the longer term, is a possible slow-down in investment activity, said Harry Milling, a banking analyst with Morningstar.

Retail banking is another area of possible concern. "Any loss in consumer confidence will effect the retail banks," Milling said. Wells Fargo & Company in particular, he said, has a large mortgage operation. Citigroup could be effected by reduced consumer purchasing on the company's credit cards.

Insurance
Insurance claims stemming from the terrorist attack on New York's World Trade Center likely will reach into the billions of dollars. The attack will surpass the $775 million in claims caused by the 1992 Los Angeles riots, which ranked as the most costly man-made U.S. disaster to date, the New York-based Insurance Information Institute said. Credit rating agency Moody's reportedly pegged the insurance costs of the WTC destruction at $10 billion to $15 billion. However, it will likely be a few more days more an accurate tally is available. (For more on the costs to the insurance industry, see "WTC costs: Too early").

Damage due to fire, explosion, smoke is generally covered by property insurance policies, spokeswoman Caroline Gorman, of the Insurance Information Institute, said. Insurers generally do not cover damage from war and some commercial policies may also not cover damage from terrorist's attacks. But such "exclusions" are generally limited to European insurers. "Some European insurance companies do not cover terrorism but [we] do not know of any U.S. based carriers that do not cover it," Gorman said.

Shipping
Air shippers will also be hit hard. Federal Express, the world's No. 1 air-express package shipper, said shipments to and from the U.S. were likely to be delayed from 24 to 48 hours due to the suspension.

As of early Wednesday morning DHL Worldwide Express had cancelled air services. United Parcel Service was continuing to accept ground and air packages, but a spokesperson said UPS has been giving customers with packages that had been going by air the option of sending them by ground shipment instead. U.S. domestic package volumes represent about 80 percent of UPS' business.

Hotel and entertainment
Hotel operators were already suffering from the general slow-down in the economy. Marriot International Inc. had already surprised analysts and investors when it said it would report that it's revenues per available room -- or revpar -- are expected to be down by 7 to 10 percent in the third quarter, which ends next week. Some analysts had been holding out hope that September, generally a good month for travel, would lift the industry out of its recent doldrums. If travelers cut back, it may not.