Impact Of Accidents On Airline Industry

Answer :

  CHAPTER 1- Introduction

Any air crash is a shattering incident since neither one can quantify the impact of losses of human lives in terms of short term and on extended term nor appropriate reparation be offered. The impact of crash on the associated companies, their shareholders and in general the air transport industry is an area of grave concern to economists, regulators and common people. The target of this study is to analyse the impact of such an aviation catastrophe on finances of air carriers and companies involved.

An accounting statement should not be taken as a base to calculate the monetary effect of air crash. The companies can tweak accounting principal to their benefits to enable them to “hide” negative information while putting focus on promising broadcast for instance increase in air routes and passenger miles. Also, the insurance pay outs due to these catastrophes, pay off for majority of the losses incurred but ensuing increase in premium amount is not visible in income statements.

Example

There was a great catastrophe namely Germanwings Airbus in France. Whether it affected the consumer market or not? For the budget airlines, the effects were worse even what they had expected. In this incident almost 150 passengers and the crew members were died in French alps, so to express the grief, so many Germansings flights were cancelled but the damage was very much deeper. That was  really a very tragic day because the victims’ relatives rushed into the crisis centers and saw the psychiatrists there. So, it was concluded that the airline has to face a lot in terms of the passenger’s trust, financial risk and loss of employees as well. As per the French Press Agency (AFP) the stock was the worst performer. Also, the manufacturers of the Airbus, started to slump a lot. 

As per Connor Campbell of the trade group Spreadex, “it is a tragic to state that it is not possible to figure out the exact movement in the market on the basis of pure stats”. A German broadcaster namely Deutsche Welle stated that with the consumers trust it become possible for the company to recover and start working again in the same way. A stock analyst said that what is the impact of such incidents on the passenger, cane never be under estimated. 

After the tragic crash, for some time there was a slash in the ticket sales but the consumers as well as the investors again switched to this option. In the same month it was mentioned in the Journal that the small airlines as Germanwings, should not consider themselves as very much comfortable. Whereas it is also a fact that the big companies like Trans Asia are focused on upgrading their features for the consumers’ attraction by offering them more comforts, might not be considered as the safer ones. If there are embellished safety features as well as the long tracking records are available, there would be frequent travellers. “It is quite possible with the latest influx due to the airline crash in Germany, says, Jeff wise, author of the Extreme Fear.  At this point of time, the passengers would definitely think twice whether they should try to get this flight or not for their travelling. But in this time of atmosphere, the passengers who are focusing on money, it would be advantageous for them to switch here because the ticket prices were went down. 

In the last few years, various kinds of researches have been made to get to know what is the impact of disaster caused by aviation on the stock prices. But every research gave varied results. A study done by Carter & Simkins, (2004) gave the results that there is a negative effect of this airline crash. Marcus & Goodman, (1991) that after that event occurred there was only one day when the full trading was done. After the aviation crash announcement, the abnormal returns remain negative for next 6 months at least. But for the whole time, the reactions were almost same. As per the study made by Kaplanski and Levy (2010), airlines had to face great impact due to the aviation crash. Also, the rates of return went down just after this disaster. After that, there was a reverse effect for at least 10 to 12 days. 

As per the study made by  Mitchell and Maloney (1989), the brand name has great effect whichever were involved in the aviation disaster. As per their study, there was a great loss of the goodwill as well for the consumers.

Mitchell and Maloney made a study and reached to the conclusion that, there was complete negative market reaction and also concluded that after the airline crashes, the service demands by the consumers were also got reduced. On the other hand, the study made by Borenstein and Zimmerman contradicts it. They did not find any positive or negative effect of the crash on non crash airlines

As a result of these theories, it can be said that it is very for the markets to integrate with new kind of changes in a quick way. And after the crash occurs, there is definitely a negative impact every day. This is giving the same results as EMH.  But it is found that as per the study made by Walker et al. (2005) and Ho, Qiu & Tang, (2013) the results found were more than one business day after the crash in aviation. Also, Walker et al. (2005) found that price got down after the aviation crash at the rate of 2.8% after in first business year. Following that, again there was a price drop by 1.08%. 

Ho, Qiu & Tang, (2013) find  that just after the crash event, there were negative returns and all these results too place for at least 25 days. There were great efforts made by the airlines to assess the stock price reaction after the aviation disaster happened. Chance and Ferris (1987) made a test and found that there was a total loss of 1.2% in the shareholder’s wealth after the crash occurred. Also, it was observed by their research that the airline companies which were not the part of or not involved in the crash did not have any impact. So, it is concluded that the impact is not at all on the complete industry. 

Just after the aviation crash, there was an immediate reaction for all of the airlines which were directly or indirectly involved with it. Also, their research states that this effect was not for long time time after the crash event. Rose, (1991) made a research and found that there were great losses on the airlines and the value of the company involved in commercial aviation. Consequently, they found that there was great loss on the common stock and the return on investment. 

Before they made the study, another study was also conducted by Bosch, Eckard & Singal, (1998)  and found that there was a great loss to the aviation industry. They made further enhancements to their study focusing a particular kind of industry. They chose the airline industry just due to the reason that it has high probability that with the aviation crash there would be great losses to the airline industry. With this regulation, the benefit associated was that there was an important liability insurance coverage to be done along with. On and just after the date of the aviation disaster, there were great losses observed. But it is also observed that these reactions are only for some days; after that the results got reversed. But this study simply contradicts the study made by Sprecher and Pertl. Because they found that obviously there would be negative impact but that won’t get reversed after the lapse of few days. Borenstein and B. Zimmerman (1988) found that there was a deviation in the results after the aviation crash. And there is almost no or very less impact as per the Airline Deregulation Act3. 

  CHAPTER 2. Literature review 

2.1 Aviation industry

As explained by Akhtar et. al (2011), During 1970s the airline industry has witnessed a huge growth mainly due to liberalization of policies and economies of Europe and US. The policy of ‘open skies’ has allowed more liberalization to global airline industry, lowering of government control as well as free market environment creation. In the view of Al-Tamimi, Alwan and Rahman (2011), liberalization initiated a rise in demand for air travel, which is further backed by the advancement in the technology like online ticket booking system, online payments etc. As per Berry (2008), the aviation industry has faced difficult time during 2000. The growth of industry was slow as compared to growth in other industry owing to positive economic scenario during 1990s. Same way, the aviation industry again faced a major blow after the 9/11 terrorists attack. This has resulted in many mergers and acquisitions, restructuring, bankruptcies as well as strategic alliances. The impact of 9/11 was at global level resulting in reducing in air traffic, lowering of profit figures and rise of crude oil prices.

In the view of Bond, Edmans and Goldstein (2012), the economic fall of 2008 has also affected airline industry. That crisis has again caused the negative growth rate of airline industry. The global economic slowdown and high crude prices has created financial problems for the global air carriers companies. With the decrease in the demand of travel, it became necessary to accommodate resources as well as capacity for both long as well as short run.

2.2 Causes of Accidents 

In aviation industry 4 main causes behind accidents have been traced back. Those are: errors by human, machinery failure, weather and hijacking. The after effects of airline accidents are immense having huge direct and indirect losses. In the view of Cai, Chou and Li (2009), airline accidents affects the reputation of not just the airline company but also of the nation the airline belongs as it has international tourists also.

Human Error 

Around seventy percent of accidents in airline industry are because of human errors. As explained by Carter, Griffiths and Lim (2012), there are four levels of human errors which can be noticed, which are interrelated too. These levels are – influence of the organization, defective supervision, unsafe activities and pre conditions for unsafe activities. For example, Wrong or inappropriate managerial decisions, hectic working environment and defective operations will create unsafe supervisions as example.

Mechanical Failure 

As per Cento (2009), although human errors are a major cause of aviation accidents, but mechanical or machinery failures is also a prominent cause. He added that mechanical failures rate the 2nd biggest reason behind airline accidents. For example, mechanical failures might done by pilot in the form of ignorance or misjudgments of occurrence of accident or failure in reporting of malfunction of some parts. On the other hand, in the view of Koch and Fenili (2013), the inadequacy of ground crew includes failure of the crew to properly inspect the airplane prior to take off, inappropriate supervision of crew members through their supervisors. At last, mechanical failure might also happen because of in appropriate designing of plane or wrong plane building or assembling, or fault in describing customers regarding the product i.e. failure in providing warning or manual instructions.

Weather Conditions 

As per Da, Engelberg and Gao (2010), weather condition are those natural conditions which would cause accidents of aircrafts. Studies indicate that weather conditions might be devastating, but aircrafts accidents due to it are less in comparison to previous two cause i.e. human error and mechanical failure. The factors related to weather causing accidents of aircraft includes wind, turbulences and visibility. In the opinion of Dobruszkes and Hamme (2011), weather situations are in proximity to the ability and skills of pilots to counter adverse weather conditions. Such factors could be avoided if crew and pilots have the ability to avoid such conditions. According to Durge (2011), experience, training and equipment are main elements for handling dangerous weather conditions.

Terrorist Actions 

As defined by Engelberg and Parsons (2011), terrorism activities are unanimously regarded as violence activities which are against any civilization for attaining ideological aims. In relation of aircraft terrorists attacks could be a) hijacking of aircraft i.e. seizing of aircraft forcefully by a person or a group, b) committing suicide while on aircraft, c) Attack on aircraft through weapons and d) planting explosives in aircraft.

As per Franke and John (2011), terrorism is a global problem. It affects the sentiments and thereby perception of people. After the attack of 9/11 there is sharp fall in the revenue of airline companies which has led to less demand of airplane from manufacturers.

One of the best example can be: The terrorists have shot down the passenger plane in Eastern Ukraine having two hundred and ninety eight passengers on board which has impacted the airline industry and it is only now the industry has recovered from losses after several years. Through this impact of any kind of disaster on airline industry can be seen appropriately.

2.3 Impact on aviation industry

Airline’s perspective: 

According to Geetha et. al (2011) The worth of a company is valued through its share price. The share denotes the value of each share in the present market listed on the stock exchange of a nation. The stocks or equity share denotes the owner of the company and same ideology applies to the aviation industry also.

As per Halunga, Orme and Yamagata (2011), aviation industry is capital intensive i.e. it requires huge initial investment. Investors investing in the business usually have long term perspective as break-even of the industry takes some years to achieve. It is after that company earns the profit. As observed by Ho, Qiu and Tang (2011) in the research “The Catalyst in the Air Crash-Stock Market Performance Relationship: The Aviation Disaster Fatality, Social Science Research Network”, government have keen interest in development of airline industry as it not only attracts foreign investments but helps in the development of tourism, expansion or busies and overall development of economy.

As per a study performed by Kaplanski and Levy (2009), on aviation industry, aviation companies receive a major setback due to accidents. If a particular company airplane met accident due to mechanical failure all orders comes on hold. As per the research aviation industry is full of risk. Though there are limited players in the industry because of huge initial investment government support is required at all walks for making the industry a lucrative business. According to Knecht and Lenz (2010) an airline company has to follow various rules or different department of companies which increases cost of production of plane.

In the view of Lofquist (2010), Risk of accidents is applicable to by mode of transport may be through airplane, train, ship or even bicycle. The probability of risk is almost same. Airline manufacturers make each attempt to rule out the probability of failure of machines. However Koch and Fenili (2013) argued that due to low or no maintenance airplane faces mechanical failures. With the rise in the number of airline operator sin the market the profit margin is shrinking due to which companies are compromising on maintenance cost and safety cost. Manufacturers also have to incur heavy cost in quality testing of airplanes. Besides, manufacturing of airplane involves assembling of many parts which are manufactured at different facilities and different companies. As per Larcel (2011), manufacturers are less concerned about the material or technology used in the assembled parts , they just what their plain to pass the quality check.

As per a research performed by Lofquist (2010), there are different ways to evaluate the impact of airplane accidents. One way is to assess the risk involved by measuring length of route. However, Madsen (2011) clarified that liberalization or de-regularization has lowered the safety in aviation industry, because of incoming of many new players, but travel through air is still safe. Based on a study performed by Michaels and Pasztor (2011), regarding effect of air travel fatalities through measuring performance of country specific airlines, the countries were divided into 3 groups namely- developed countries, developing countries and at last least developed nations. The study clarified that air travel in developed nations is comparatively safe in comparison to air travel in developing or least developing nations. The probability of accidents in developed nation is 1 in 2 million while for developing nations it is one in 5 hundred thousand. Another study performed by Morrell (2011), indicate that the accidental risk in air travel enhances with rise in the length of route, fall in expenditure of safety features. In his study Oster, Strong and Zorn (2013) measures the impact of accidents on airline profitability through applying Poisson Model. According to the model, the risk involve in probability of accidents with increase in profitability with increase in the number of flights.

In the opinion of Ramdas, Williams and Lipson (2012), there is crucial association between safety and profitability in airline industry. The safety in the industry is measured through accidents occurrence. However, he added that this is perhaps more true for medium and small airline companies

One more way to analyze the association between airlines financial value and accidents is through distributing airlines into regional carriers and national carriers. As noticed by Shah (2010), there is significant and adverse relationship applicable only for regional and small airlines. Same way legacy was also seen in relation to accidents by Reeven (2011), as per the observation well established and age old brands of airplane haven seen less accidents in comparison to small brand airplanes.

As stated by Shyur, Keng and Huang (2012), accidents influence share prices of airline industry but an important role for that is played by media. Media influences the sentiments of brokers which directly affect their investment decisions. Sobieralski (2013) concluded in his research “The Cost of General Aviation Accidents in the United States. Transportation”, it is founded that airline disaster and media effects in the negative manner are followed by low rates of return which is actually reversal impact two-three days later. After an accident there is nominal loss to manufacturer or owner in airline industry and prices of share touch precedent values. But, media influences psychology and behavior of the investors towards their investment decision. As a result, raised worry following flights accidents there is short time reduction in the call for risky price, which ultimately affects airline transportation and share prices of the organizations, comes under the industry.

As per a study performed by Bond, Edmans and Goldstein (2012), in relation to financial results and fatal accidents, it was held that number of plane crashes and financial performance has adverse relationship. The return of company reduces with the rise in the number of crashes. In the same study it was also found that rival firms too suffered losses owing to plane crash of one company. This led him to conclude that accidents in airplane industry affect not just the airline company whose plane got crashed but also the whole industry. The point is further backed by Ho, Qiu and Tang (2013), who explained that after 9/11 attacks the whole industry faced the downfall in number of travellers. On the other hand if there are low number of accidents of airplanes than even rival firms gains more passengers and thereby the industry gets the boost. A research of Kaplanski and Levy (2009), explained that the loss due to accidents is very heavy in comparison to expenditure on safety measures. Besides, it also provides other benefits like goodwill formation, business expansion and most importantly saving of life. As per an investigation done by Knecht and Lenz (2010), on costs linked with accidents in aviation industry, the entire cost can be divided into two categories direct cost and indirect cost. In the investigation the relationship was established between performance of the company and accidents through ascertaining the cost incurred by the company due to calamitous events.

Consumer’s perspective 

In the view of Sunder (2012), an individual always put emphasis on negative news and feedback rather than positive one. It is the way of making a decision by people. When people heard negatives about airline accidents the process of exclusion starts. In the words of Walker and Horne (2012), at a point, the process of decision making is not just for including many facet and options but it is about rejection. Accidents regarding to airlines impacts psychology of people with respect to make decisions like whether to go for airline transport or not. It ultimately makes loss for the industry. As commented by Yang (2012), a passenger filters all his/her knowledge before apply for tickets. Negative news makes his/her confidence low towards air transport.

With respect to psychology of people, Akhtar et. al (2011) studied, people regularly modifying decisions of them. Making a decision is not only an eventual moment which involve beginning and last conclusion, but it is a process which is ongoing in nature. In the view of Cai, Chou and Li (2009), impact of accidents in airlines industry is huge on psychology of people even though they are not preparing for any trip currently but because of decision making of people never ends, they make decision of rejection to travel by airline. This supported by Carter, Griffiths and Lim (2012), people are continuously changing their standard with the help of present as well as past realities

People has basic tendency of rejection which is impacted by several factors. As studied by Da, Engelberg and Gao (2010), doubt, negativity, lowered expectation, possessed worry can easily twist behavior of people. These all things are directly associated with accidents issues in airlines industry. These can affect people’s mindset to move for another transport.

Dobruszkes and Hamme (2011) opposed that since each individual has his own safest transportation mode and every transport has same risk of accidents. Indeed, airport industry have greater risk and risks starts with driving from and to airports but still people select flying to their place. Franke and John (2011) supported, after many accidents in airline industry, there are many people who do not change their perception and go for flights.

In the view of Oster, Strong and Zorn (2013), it is a fact that each individual is a risk adverse. In present era, many risk issues are given overstated significance. With respect to airline industry people are very aware about the risks and dangers of aviation crashes.

According to Ho, Qiu and Tang (2013), post 9/11 attack for avoiding the risk of air travel more than 3 thousand travellers died in road accidents on national highways. In the similar line Madsen (2011) explained that, air travel is a preferred travelling mode because of many reasons like time saving, comfort etc. As per Morrell (2011), the customers of airplane manufacturers are airline companies whose business largely depends on the customers.

2.4 Impact of accidents on share price

On this topic, so many researchers have been made; one of them was made in 1986 by Golbe and resulting in a statement that safety and profitability are not at all related. Rose (1990) found that there is safety affects profitability but to some extent only. After thorough analysis, it was found that for small airlines this remains same but for the large ones this relationship is not applicable. As per the study made by Vanasse (1997), safety and profitability have a reverse relationship when the airline is small. But it was also discovered that the airlines spending much amount on their maintenance definitely impact the bottom line reversely and there are very less chances of accidents as well. Noronha and Singal (2004) also made a research but by using a different kind of strategy for answering re question if there is any impact on the financial health of the airlines and safety records. They did use the bond ratings to measure the financial health of the airlines rather than using the profitability. And it was concluded that those airlines are safe which have strong bond ratings.

The research conducted by Savage (2012) was based on another strategy for assessing if there is any link between airlines’ financial health and the safety. The conclusion was that if the airline has a better safety record, it would be great profitability. He also found that the airlines might have to face some problems to communicate between the safety differentials and the information the consumers want. In other words, the consumers are not willing to pay anything  for safety measures. Madsen (2011, p. 3) conducted a study to again examine and find out the relationship between the profitability and the safety record of the airlines. But he found the results which were inconsistent. He found that if the organization is meeting the profitability targets, there is a great probability that the organization might have to face the accidents as well as the incidents (Madsen, 2011, p. 23). On the other hand, if the organization is not performing near to its targets, they will definitely spend less amount of money on safety. If they are performing below the profitability level, the bottom line will not get much impacted. But if it is performing good and getting good profitability, the airline would definitely like to lessen the number of accidents occurring in the organization. 

The study conducted by Madsen finds that there is  no such methodology by which the organization can compromise the safety. For an instance, if the organization has been investing less amount of money on safety but meeting the safety goals, then there is a possibility that there would be reduction in the maintenance cycle. Generally, all the aspects related to safety are as per the labor and regulatory agreements. Some other have also made a research on the same theory and found that there is a direct relationship between the safety and maintenance. 

Marais and Robichaud (2012) have also found that the airlines maintenance has a great impact on the risk for passengers. They concluded that there is significant amount of maintenance on the risks for the employees. Also, they figured out that the accidents which might occur due to less maintenance are very much serious than the other ones.  There was another study stating that the aircrafts are old ones there are chances that there would be great risks associated. (Nelson &Drews, 2008) made a conclusion basis their study that the product liability standards are in order and are very much strict then the liability insurance cost also gets increased. 

Consequently, the prices were raised by the manufacturers which usually might effect in a negative way when any new aircraft is there for sale. As a result, the aviation fleet was in use for long time. The authors also predicted that the new products would be purchased there would definitely be less chances of accidents. On the other hand, older the product is more are the chances that the aircraft is accident prone.

Any company’s stock behaviour in market after event is a true reflection of the financial impact and serves as a true measure. Price trend of such stocks in a competent stock market react swiftly to any such latest updates and thereby imitate the economic content. It has been captured very comprehensively by Kaplanski & Levy, (2010) in research that stock market is an indicator to immediatley react to events which are of significance to capital of stockholders.

In cases which are not tragedies and which do not have any previous example, we can still apply competent market concept. We can relate to instance of Sobieralski, 2013 who studied the impact on stock prices. He concluded with report showing that the impact was substantial for aviation business. Parallely capital market approach was studied after airline deregulation. Ho, Qiu & Tang, (2013) discovered that there was a sudden increase in the risks of stockholders of air carriers after deregulation exercise.

The response of stock markets to air crashes may be the result of anticipated contrary reaction of end clients. Firstly, the customers, are bothered about safety mechanisms of crashed airline and probability is that they switch over to competitor airlines. Secondly, any event of crash, raises serious apprehensions about other components of commercial air system, which indicates that any “negative spillover” would have an influence on the demand for all airlines. As part of study, for cases when any air crash happened, we analyzed the reaction to stock prices for the airlines not part of crash. Carpentier & Suret,. (2015)  studied their route overlap with the airline involved in crash and whether they can serve as substitute. Evidences were found that consumers displayed the tendency to switch over with the airlines having greater overlap than with the airlines having minimal or no overlap which looked to be affected by probability of negative spillover.

 Chapter 3. Research

3. Aims and objectives of research

Accidents in aviation industry are the rising issues that are being faced by the society, government and airlines and thus we have taken it as a subject of research. In this research, we will try to explain impact of accidents on aviation industry. A deeper understanding of the causes of accidents will also be analysed in this research. The aim of the study is to survey the effect of air crash over stock prices. One of the test will investigate the impact on share prices of the airline carrier. It is an expected behaviour that the shares will show negative trend, but the quantum and the speed cannot be predicted as the deduction is more theoretical. Another investigating angle of the study is to check the involvement of stock prices of airlines which are not directly related to crash. It was expected by the investors that there will be rise in insurance rates and stricter regulations and this will impact the airline industry as whole. In case any crash triggers negative reaction on stocks of airline carriers, then in the view of investors, aviation disasters become issues across the industry and cannot be classified under isolated events where only the affected airline is involved.

4. Justification of research

Analysis of the aviation safety pertaining to the accident data and morphology has proved to be a lot more difficult than perceived, because of certain limitations and complexity of the situation. And also, the data availability along with the difficulties at the time of investigating the accident. However, these analyses have long time been used in justifying the resources and the type of Technology used. this also leads to formation of rules and policies and development in sector of Technology. However, the result of such analysis done on the accidents mainly depends on the type of operation that is being considered. it has been discussed in detail by Motevalli and Salmon  in the year 2005.

There is proper rationalization in economics why we need to study the behavior of stock prices to study the financial impact due to an event. The behavior of stock of a company in case of an event assesses the discounted future cash flows of the business by investor. In other words it can be said that it echoes company’s lucrativeness demarcated by its forthcoming cash-generating capability. Thus it can be said that stock price is an indicator of capital of shareholders and shows their inclination towards investing more wealth in the company. In cases where share prices decline due to occurrence of an event, it implies that the investors anticipate a decline and/or riskier cash flows in coming days. For cases where there is no substantial impact to stock price, it is an indicator that the event does not express any noteworthy evidence or any ambiguity about company’s future cash flows.

CHAPTER 5. Research Methodology

5.1 Research Design

This part of the segment will help the researcher in order to identify the various appropriate methods and approaches that can be helpful in able to complete the research in a proper and successful manner.  there are two types of distinct form of data that can be used by the researchers for collecting data that can be used for any specific topic.  the broad classification of these data or into two categories namely quantitative and qualitative data collection.

Quantitative method:  it emphasizes on the importance of numeric data and values in the form of figures and facts while analysing the result. In present research, case study method is used

Qualitative data:  this type of data collection in was qualitative features like the values beliefs observations, Relations and individual viewpoints that directly affect the results and response of the individual.  This can be done based upon conceptualization.  In this method, mostly open-ended questions are asked in order to allow the individual to give a deep inside into the behaviour pattern and can describe the situation in detail.

5.2 Research questions

•  What are the causes of accidents on Airline Industry?  
•  What is the extent to which the accidents affect fluctuation of share price of Aviation Company?  
•  What is relationship between accidents and financial performance of Aviation Company?

5.3 Data Collection design

The researcher conducts primary and secondary analysis on the data so that valid and efficient data is retrieved. This is done with the intention of supporting the topic and to conduct a better form of analytical research on it.  The researcher however should also focus on the limitations of the study to make the research more successful and also consider ethical Grounds while the cut survey is being conducted.

Secondary data

Any data that is used again and again for a specific research on a topic is known as secondary data and was originally collected by somebody in the past.  In this research, case study method is chosen.

5.4 Research Design 

In this study, we will be using the post- positivism and deductive approach explains it further. For in depth analysis the break the current type of research which is in the descriptive study is most suitable.  Reason for choosing such approach was too much the data in both qualitative forms and justify the aim of the current research.  in areas where experiment isn't possible, descriptive studies give a platform for exploration. Also, the scope of phenomenal description is broadened.

To assessment the impact of an event on stock rate, methods are employed to segregate the effect of event from other forces at work originating from a different cause. In order to study the effects on stock price movement without the event taking place in reality, event study methodology utilizes a type of market model. Two such important assumptions are taken for the study model. When we go by second assumption, we can assess uncharacteristic returns for a security based depending upon how considerable price digressed from the expected share price. A combination of these two assumptions enables us to do analysis of the effect an event on the selected stock.

Database was further used to establish the events relating to Aviation safety which were based on the following types of criteria: 

The collection of primary data resulted in a database of 27 events that had basic details available of the accident. However, the airplanes database did not differentiate on the basis of one accident being more fatal than the other and were considered equally significant.  in order to receive more information and collect specific data for each incident, a lot of Internet searching was done. for example, there was an accident with in which a Korean light and accidentally resulted in encounter in a volcano eruption and the Flames went out of all 4 engines during the flight in the air was considered as a part of the database, however the Pilots were able to start the engine all over again able to manage the fatality of this event which resulted in minimal injuries. Thus, this accident was not taken into the consideration as there was no loss of life or property. The definition that has been provided by the NTSB and FAA, states that the event to be taken into consideration is the one which results in causalities more than 25 victims.  One the incident was chosen it was further analysed and reviewed based on the share price that were affected. All these accidents and the 26 that were reviewed had included the details of the aircrafts involved in the accident taking it from air disaster.com and aviation safety.net.

It takes a lot of time and a span of several years to be able to significantly demonstrate defect and impact of an accident and finding out the cause behind it, as this is crucial.  

the entire procedure that was followed in order to know the impact on share price from the list of accidents based on the above-mentioned criteria of impact, the opinion of the experts, and the volume of financial changes that was generated by the incident. Once this process was over, the list of accident was lowered down substantially, post which other investigation of the causes were also revealed to be able to determine the lack of safety mechanism.

For example, it can be either a failure of the machinery or carelessness on the part of the humans.   Table 1 contains all these lists of accident along with all accidents that were a part of the previous papers. Therefore, at the conclusion it shows that such lethal accidents follows by the seriousness inherited in nature results in the highest possible financial impact. However, on two contradictories, it may be recorded that only the financial loss in the accident was not the only criteria to be able to showcase the impact that accident might have had in changes to policy rules and regulations and development of Technology. 

  CHAPTER 6 Data Analysis

U.S. National Transportation Safety Board (NTSB) is accountable to publish statistics on aviation tragedy. These statistics constitutes of information regarding accident that have occurred in the past including those at site, on specific time and date, the gravity of damage that has accrued and sufferings with it, type of aircraft model and its operations as well as the involved airlines those of which had crashed. NTSB also provides foreseeable events information i.e. possible causes as well as factual data reports i.e. properly investigated causes of the accident. The statistics of NTSB involves selection of screening criteria involved in the investigation. The case study in this article involves approx. 150 clashes that took place within last thirty years including 25 or more casualties. The chief criterion of screening for data collection constitutes aviation type (civil or commercial), the operation involved (civil, commercial, U.S., non-U.S. or foreign) and the time window of tragedy. Hence these air tragedies include national and foreign airbuses operating within national (U.S.) boundaries or in foreign lands (non-U.S.) possessed by civil commercial aviation and happened worldwide(places) from January 1990 until May 2010 are registered. Another thing to acknowledge here is that NTSB does not provide the information of accidents of the year to before selected time period. Another criterion used to measure the aviation tragedy is the data availability with the investigators of the accident. From the information available at hand, it is found that Bloomberg is used for data collection. Through these data collection both the U.S. and non-U.S. tragedies are examined. but it is also found that most of the publicly owned airlines like Arabian, Chinese, Russian are never examined or their data collection are never published and are unavailable on Bloomberg information for those companies are also unavailable on Bloomberg which are declared bankrupt or have been merged. irrespective of the fact that whether they belong to U.S. or Europe. The last criterion in the screening is number of casualties that have resulted from air crash. Out of the list, only 25 or more deaths are counted under aviation tragedies. This restraint in human loss is due to accrued attention levied upon the crashes which are exclusively broadcast in mass media and have garnered public concentrations. On the contrary, rather less popular crashes which might not be that helpful in the observation. Now after discussing all the screening criteria, an instance of 30 record for airlines and 86 records for aircraft manufacturer are being discussed, which includes civil commercial aviation catastrophes constituting more than 25 casualties and are dated from January 1982 to May 2010. The bifurcation of the data in two different samples is due to data availability and daily stock price information available for most of the aircraft manufacturers like EADS and Boeing crafts. Therefore, the reason behind this separation of sample is to gather as much information possibly one can and which is available for each of the individual sample. Due to this reason, the information regarding all tragedies for aircraft manufacturers is easily available as well as it is three times higher than that of airlines data available to the investigators of the tragedies.

Now, for processing the data, all publicly traded National(U.S.) and Foreign(NON-U.S.) airlines revives their daily stock price and these information’s about daily stock price and the information about daily stock price are transformed through Bloomberg. These daily stock prices which are expressed in local international currencies are changed into U.S. dollars to standardize the output. The one year time frame around the crash of each company is maintained there in order to calculate the unusual returns, exercising the expected and actual returns on the stock. To evaluate the market performance of both developed and developing market an index namely MX 515 world index is designed. The main objectives of this MX 515 world index are to standardize the market indices instead of using local market for international organizations. in order to highlight the analysis done cross-section ally on the context of obtaining the negative returns that are abnormal in existence, as discussed in the beginning of the paper, in table appendix 3. Which denotes the various types of variables used to derive to a conclusion in the report. Therefore, for this purpose, panel ‘A’ gives the various definitions of the variables components used to characterize the catastrophe in aviation sector. Whereas, on the contrary, panel ‘B’ provides classifies the various causes of these airline crashes over the years and those which were reported by media.

 6.1 Inferential  statistics

Table 1-Considered data

Table 1 Accidents per airline

According to the data which is represented in the above section Table 1, the Poisson’s analysis is as follows:

Let W, M, Y denote the numbers of crashes in the next week, month (30 days), year respectively. Then one week is 7 days so W distribution “is” Poisson(7/280), M distribution “is” Pn(30/280) and Y distribution “is” Pn(365/280). Hence from formula • P[W = 0] = e −0.025 = 0.9753 ≈ 39/40 – fairly obvious • P[M = 0] = e −0.107 = 0.8984 • P[Y = 0] = e −1.304 = 0.2716 – much less obvious

The quantity of traveler planes that crash each day takes after the Poisson circulation with parameter p. The quantity of accidents every day is free. What is the likelihood of precisely 3 planes slamming in 8 days? 

U.S. National Transportation Wellbeing Board (NTSB) is responsible to distribute measurements on aeronautics catastrophe.  These measurements constitutes of data in regards to mischance that have happened in the past including those at site, on particular time and date, the gravity of harm that has collected and sufferings with it, sort of air ship model and its operations and the included carriers those of which had slammed. NTSB additionally gives predictable occasions data i.e. conceivable causes and additionally true information reports i.e. appropriately researched reasons for the mischance. The insights of NTSB includes choice of screening criteria associated with the examination. The contextual analysis in this article includes approx. 150 conflicts that occurred inside most recent thirty years including at least 25 losses. The main measure of screening for information accumulation constitutes avionics sort (common or business), the operation included (common, business, U.S., non-U.S. or, then again remote) and the time window of disaster. Henceforth these air tragedies incorporate national and outside airbuses working inside national (U.S.) limits or in remote terrains (non-U.S.) controlled by common business flight and happened worldwide(places) from January 1990 until May 2010 are enlisted. Something else to recognize here is that NTSB does not give the data of mishaps of the year to before chose day and age. Another rule used to gauge the avionics disaster is the information accessibility with the examiners of the mishap. From the data accessible close by, it is discovered that Bloomberg is utilized for information gathering. Through these information accumulation both the U.S. furthermore, non-U.S. tragedies are analyzed. be that as it may, it is likewise discovered that the greater part of the openly possessed aircrafts like Middle Eastern, Chinese, Russian are never inspected or their information accumulation are never distributed and are inaccessible on Bloomberg data for those organizations are additionally inaccessible on Bloomberg which are pronounced bankrupt or have been combined. Regardless of the way that whether they have a place with U.S. or, on the other hand Europe. The last paradigm in the screening is number of setbacks that have come about because of air crash. Out of the rundown, just at least 25 passing’s are tallied under flight tragedies. This restriction in human misfortune is because of gathered consideration collected upon the accidents which are solely communicated in broad communications and have accumulated open fixations. In actuality, rather less famous accidents which won't not be that useful in the perception. Presently in the wake of talking about all the screening criteria, an occurrence of 30 record for carriers and 86 records for flying machine maker are being examined, which incorporates common business avionics fiascos constituting more than 25 losses and are dated from January 1990 to May 2010. The bifurcation of the information in two unique specimens is because of information accessibility and day by day stock value data accessible for the greater part of the air ship producers like EADS and Boeing makes. Consequently, the purpose for this division of test is to assemble as much data perhaps one can and which is accessible for each of the individual example. Because of this reason, the data in regards to all tragedies for airplane makers is effectively accessible and in addition it is three times higher than that of carriers information accessible to the specialists of the tragedies.

In Depth Analysis

Another discrete likelihood model of intrigue is the Poisson . As a matter of fact a comprehension of the Poisson will enable you to traverse the disappointment of lines. You know, "When I came into this store there was nobody in the (line) at the quick checkout, yet when I went to look at there were 6 individuals in front of me." 

1.  Poisson arbitrary factors manage tallies of occasions after some time.  
2.  The quantity of clients entering a shop over, say, twelve hour.  
3.  The quantity of calls entering a change board from 9 to 10 in the morning.  
4.  The quantity of tornadoes which touchdown in Kalamazoo District in July.  
5.  The quantity of plane crashes in a single year.  
6. These are largely cases of irregular factors which are tallies of occasions after some time.  
7.  There are two adages for a Poisson procedure.  

In a little interim of time, the likelihood of an occasion happening is $\lambda$ times the length of the interim of time. Further, the likelihood that at least two occasions happen is for all intents and purposes 0. 

On the off chance that two interims of time don't cover, the event or non event of occasions in these interims are autonomous of each other. 

Consider a bank. It appears to be sensible, that two clients will by and large not enter the bank all the while, (i.e., in a short interim of time at generally one). What's more, the more drawn out the short interim of time, the more plausible it turns into that some client will enter. Assist the clients that enter in the vicinity of 9 and 10 are free of those entering in the vicinity of 10 and 11. 

These are presumptions and for a given circumstance they might possibly be valid. For instance, if a driver is heading to a drive-in bank window and he sees a long line then he may choose to do his saving money later; i.e., reliance separated. As a matter of fact these presumptions never genuinely hold however regularly the estimation is near reality and forecasts in light of the model are frequently genuinely exact. 

Give X a chance to indicate the quantity of occasions in a single unit of time. At that point under these suspicions we can get the likelihood show for X. The scope of X is {0, 1, 2, 3, ... } and its likelihood dispersion can be acquired. The mean of X is $\lambda$ and its difference is additionally $\lambda$. 

Likewise with the binomial, we utilize the likelihood module to acquire the probabilities. To get the likelihood that X = k , the info comprises of k and $\lambda$.

6.2 Descriptive statistics

There are several misconceptions about aviation accidents and airline’s performance. One among them is that it is very simple task and it is the solution for every problem related to other problems in the firm. There is a great effect on the profitability with the airline’s safety and there is a lot of attention over this as well. To position the brand, it is required that Airline should focus on the promises they have made for delivering the services or products to the consumers. Especially in the case of tangible brand values, this is very much important to follow this rule of thumb. Every airline must focus on the safety and in case, they got failed in maintaining safety, it could be dangerous for them as well as for the employees and the consumers. Also, the airlines must consider the severity of aviation accidents as a very important factor for their success and brand promotion. If the airline suffers severe accidents more than one times, it would definitely be deciding factors for the passengers and they might switch to some other airlines. But this is also a fact that even if after planning in a good way, there are some unavoidable factors due to which the flight might meet with unfortunate accidents and the airline has no control over those factors. 

Table 2 Impact of Air accidents on customer motivation

Perceived safety indicates the level of security for the users. It also includes the situations in which there is no risk. As per (Sweeney, Soutar and Johnson, 1999), the perceived risks mean feeling of uncertainty, being worried and the level of inconvenience.  Usually there are several risks associated with buying the airline ticket as well travelling. Some of these risks are-financial risks, social risks, and psychological risks (Cunningham and Young, 2002). The airline industry is assured that they are focusing on the safety the most and the number of accidents has been reduced to a great extent in last 20 years. However, In the case of tangible brand values, if there are so many weaknesses in the product that is to be delivered to the consumers, it would have great impact. Apart from that if the airline has been suffers from aircrash, it would of course give the negative impact as the consumers won’t feel safe and they would wish to travel by some other airline if they have been facing the same issue again and again. 

As this is very well known by the passengers as well the accidents can never be removed completely. Apart from that, media can play a great role for creating the risk awareness among the people. Therefore, to study the consumer behavior in the field of air traveling, perceived risks have been played a great role (International Air Transport Association, 2010). So the airlines companies have been taking into consideration several safety as well as the security methods for measuring the risks. 

Table 3 Example                

Table 4 Expected daily return

Table 5

Empirical results derived out of the study made on these crashes in the aviation industry and its causes:

Recent study results hints at the methodically significant stock price (negative) evident from the stock price of involved airlines from the negative apprehensive returns of the involved airlines from one to six days corresponding to an aviation catastrophic. However, there were no visible effects on the stock price of involved aircraft makers. The stock price of involved aircraft is portrayed in the below mentioned details of the table for reference and factual analysis. The declarations are as follows approx. – 1.94% on first day of the incident -1.82% for two days post tragedy and approx. -6.40% for six days subsequent to the aviation catastrophe statistically significant at 99% level. Furthermore, negative mean index accrued on abnormal return of approx. -2.15% one day, -1.82% two days, -approx. 1.9% five days and -4.50% ten days corresponding to the air crash were taken as statistically important at approx.. 

CHAPTER 7 Conclusion

It can be concluded that most of the crashes were related to the complete destruction and the average loss in the firm was less than the total social cost of the occurrence of that crash event. As per the researches made, all if the crashes are related with great loss and the estimated equity value is 1 %. But the reactions which are related to the consumer response are very much important. As per the consumers’ responses obtained, most of the travelers did not even replied back that is quite apparent. In case of deregulation, more consumers started giving responses as well. To assess that the goodwill was declined just due to the fears  as well as due to the consumption patterns which are not consistent, it was found that there was and abnormal change in the performance of airlines just after the aviation crash.. The evidence supports both a switching effect – the greater the overlap between airlines, the greater consumer switch, and a spillover – also non-crash airlines with little overlap lose value. So, the airlines which are involved in the airline crash, will be suffering a great financial loss with the switching results. There is a suggestion with the negative spillover that it is quite possible that the consumers as well as the insurers are concerned about the elements of airline which are related to safety products. Walker, Thiengtham and Lin (2005) again conducted  a research and found that aviation disaster has long term as well as the short term performance effects with the aviation crash occurrence. 

They also tried to focus on and measure the abnormal airline performance just after this crash. Apart from that, they have also conducted some tests along with the regression analysis. This way, they tried to find out the factors which due to which there can be abnormal returns after the aviation disaster. The starting price that got down due to this crash was dependent on some factors like the firms’ characteristics as well as the aviation crash. They observed that it is not only the crash that was effecting every firm negatively but it is the firm size that was bringing negative performance for the firm after the crash. Apart from that, they found that the price was dropped at the great extent during and after the disaster which was occurred in US and some criminal related disasters as well.