Strikes Could Halt Airline Momentum

Just as airlines began luring back passengers with tighter security and cheaper fares, analysts and travel agents say U.S. air strikes in Afghanistan threaten to halt the fragile momentum the industry fought hard to regain in the weeks following Sept. 11. 

War-related ups and downs are not new to the industry, analysts said, noting the decline in air travel and airline stocks during the Gulf War. That period in the early 1990s was also marked by a nationwide economic downturn. 

``The comeback may be slowed down now,'' said Ray Neidl, airline analyst at ABN Amro in New York. ``The momentum should come back, though, as long as there isn't another attack'' on U.S. soil. 

The uncertain mood was reflected on Wall Street as airline stocks were mixed. Shares of the six-largest U.S. carriers have staged a mild comeback since dropping about 40 percent each on the first day of trading after the attacks in New York and Washington, but as of midday Monday remained between 25 percent and 56 percent below pre-attack levels. 

Precise figures on airline passenger volumes since Sunday's attacks on Afghanistan were not immediately available, although David Stempler, president of the Air Travelers Association in Washington, said ``it doesn't take too much to get people uneasy about travel.'' 

Even before Sept. 11, airlines were having difficulty filling seats because of the country's poor economic outlook. The problem worsened after the attacks spurred fears among the traveling public about aviation security. Once the industry cut capacity by 20 percent, domestic flights were still half empty by the end of September. 

The situation began improving, though, as carriers offered fare incentives to business and leisure passengers and the evidence could be found at airports, where strict security measures forced travelers to endure long lines. 

Shares of airlines ticked upward during late September and the first week of October as investors viewed the stock prices of certain carriers to be undervalued. 

But now, with President Bush's military response to terrorism under way, industry watchers said the slowly dissipating hesitancy toward travel could be stalled, at least temporarily. 

``In the immediate future, people are going to be wary of flying,'' said Bob Abrams, a travel agent at Valerie Wilson Travel Inc. in New York. ``But I've seen this stuff go away in a month. Thanksgiving is going to be a bellwether. It's the biggest travel day of the year.'' 

On Monday, shares of AMR Corp., the parent of American Airlines, rose 31 cents to $21.17 in midday trading on the New York Stock Exchange. The stock of United Airlines' parent, UAL Corp., was up 24 cents to $18.34 on the NYSE, where shares of Delta Air Lines climbed 45 cents to $27.73. 

Shares of Continental Airlines declined 59 cents to $17.41 and shares of US Airways fell 27 cents to $5.51, both on the NYSE. Northwest Airlines' stock dropped 35 cents $12.70 on the Nasdaq Stock Market. 

The fledgling comeback of airline stocks actually began faltering late last week as a U.S. military response to the Sept. 11 attacks appeared imminent. Wall Street analysts said they have seen this type of behavior from airline stocks before, albeit over a longer period of time. 

``The day Iraq invaded Kuwait in (August of) 1990, airline stocks fell 40-50 percent,'' recalled Merrill Lynch analyst Michael Linenberg. Shares of major carriers bottomed out in November, but eventually regained much of that lost ground. 

``Then they took another hit after the U.S. struck Iraq in January of 1991,'' Linenberg said. 

Since World War II, 1991 was the only year in which global air traffic declined from the previous year, Linenberg noted. That 1.5 percent drop-off was due to the combined effects of the Gulf War and the weak economy, he said, adding that 2002 could be even worse. He expects a decline of 10 percent.