Using intervention analysis I assess the effect of the September 11 terrorist attack on the performance of the US airline industry. The estimated initial effect supports the US federal government decision to provide a $5 billion cash compensation to the airlines. However, the long-run effect is found to be much smaller than the losses reported by the industry in 2001 and 2002. Also, the analysis suggests that not all of the airlines were equally affected by the terrorist act and that investors were fairly rational pricing major airline stocks, but were less accurate with the stocks of smaller regional carriers.