Shares in Airline, Travel Companies Drop Sharply Amid British Terror Plot

Published August 10, 2006

| Associated Press

Shares of airlines and travel companies dropped sharply Thursday after British authorities reported they thwarted a terrorist plot to blow up several aircraft in flight between the United States and Britain.

As heightened security measures caused long delays and canceled flights at airports around Europe and the United States, experts said the alert could be a severe blow to both industries.

"You will always see a sell-off based on the headlines today, but investors and analysts will now be waiting to see the depth of issues," said Henk Potts, equity strategist at Barclays Stockbrokers.

The plot had targeted United Airlines (UAUA), American Airlines (AMR) and Continental Airlines (CAL), according to two U.S. counterterrorism officials.

Shares of U.S. airlines were hit hard in early trading. American Airlines parent AMR Corp.'s stock fell 69 cents, or 3.4 percent, to $19.60. Shares of UAL Corp., the parent of United Airlines, fell $1.43, or 6 percent, to $22.40. Continental Airlines Inc. fell 83 cents, or 3.4 percent, to $23.38.

At Heathrow Airport in London, Europe's busiest airport, all short-haul inbound flights had been canceled with several outbound flights also canceled or delayed, said Tony Douglas, managing director for airport operator BAA PLC.

British Airways PLC canceled all its short haul flights to and from Heathrow and several more services to and from Gatwick. Its shares fell 3.9 percent to 374.50 pence ($7.15) in trading on the London Stock Exchange.

Analysts said the main impact on airlines will come immediately from the cost of canceled flights and in the longer term from extra expenditure on security. Expenses at BA's home airport of Heathrow — which caters to 190,000 passengers and 1,250 departures and arrivals on an average August day — could skyrocket, they said.

"The news and airport disruption is negative in the short term for all U.K. airlines, especially for BA at its busiest time of the year and will also contribute to negative sentiment for the European airline sector as a whole," said BNP Paribas analyst Nick van den Brul.

United Airlines flights from London to the United States are expected to operate about two and a half hours late, said spokesperson Robin Urbanski, but the airline hasn't canceled any flights. American Airlines spokesman John Hotard said at least one London-bound flight from Chicago has been canceled Thursday morning and a later flight from London to Chicago has also been canceled.

The news sent European stocks down across the board, with major indexes in Britain, France and Germany each off more than 1 percent.

Budget airline easyJet PLC fell 2.6 percent to 411.75 pence ($7.84) while fellow low-cost carrier Ryanair Holdings PLC was down nearly 2.8 percent to 7.32 euros ($9.41).

The new security measures banning all hand luggage from all flights leaving the U.K. posed a logistical problem for Ryanair, which this year began charging customers for each bag they checked — a policy that has swelled the volume of luggage carried on board the company's aircraft.

Among other airlines, Air France-KLM was down 2.8 percent to 19.19 euros ($24.68) in Paris, while Lufthansa was down 3.2 percent at 14.16 euros ($18.21) in Frankfurt.

The ban on hand luggage will also likely hurt some retailers, who run tax-free franchises at airports. Retail operations are a major source of income for airport operators like Ferrovial SA, whose shares fell 2.8 percent to 60.50 euros in Madrid ($77.77). However, its affiliate BAA was up marginally, 0.3 percent, at 936 pence ($17.88).

The malaise also spread to other travel companies, with British package tour operator MyTravel Group PLC down 4 percent to 204.25 pence ($3.88).

Meanwhile, many travelers were headed to the railroads in Europe. Eurostar Group Ltd. spokesman Gareth Headon said the company's train service across the English Channel had carried 10 percent more passengers than usual by midmorning.

"We are expecting that to grow throughout the day," he said, adding that Eurostar had employed extra staff to ease check-in congestion.

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