FORT WORTH, Texas—The alleged terrorist plot in London presents the U.S. airline industry with a new challenge as it continues to battle record-high oil prices. Call it the "hassle factor."
For five years, the major airlines have been fighting to recover from the devastating effects of the Sept. 11, 2001, terrorist attacks, which led to billions in losses, thousands of job cuts and several carriers in bankruptcy court.
Now they have to convince travelers to fly despite the inconvenience of additional security and restrictions on taking liquids aboard flights.
Industry experts were uncertain how long the impact would last.
Wall Street generally shrugged off the latest terrorism scare Thursday, with shares of major airlines recovering from losses early in the day. In fact, only one of the major carriers, Houston-based Continental Airlines, posted a loss.
Ray Neidl, an analyst at Calyon Securities in New York, said he thought the after-effects of the terrorism arrests on the airlines would be only "short term and minor."
"It's not as bad as I thought it'd be because business disruptions don't appear to be as broad as I originally thought they would," Neidl said. "Basically, we just have to monitor booking trends that we'll take over the next couple of weeks. At this point now, I don't think they're going to be visibly affected."
Standard & Poor's, however, downgraded its outlook for the airline industry to neutral from positive. Airlines are starting a "less seasonally strong travel period," which typically lasts until Thanksgiving, wrote Jim Corridore, an airlines and airfreight equity analyst at S&P.
That, combined with the terrorism arrests, means a more risky financial environment for the airline industry.
"We still think U.S. airlines are in the midst of a fundamental earnings recovery in a strong revenue environment with non-fuel cost cuts," according to Corridore's report.
Many major carriers, including American Airlines, have been banking on growth in international flights to add profits and cushion price competition with domestic discounters such as Southwest and JetBlue.
"We think today's attempted terrorist attacks, along with high oil prices, have made risks too high to continue recommending purchase of the shares," Corridore wrote. "We still believe AMR and the U.S. airline industry are amidst a fundamental earnings recovery that should last several years, but we would not be buyers at this time."
S&P lowered the ratings of AMR Corp, the parent company of American Airlines, to "hold" from "strong buy."
Shares of American ended the day unchanged, at $20.29. Southwest shares rose 4 cents to $16.94. Shares of Houston-based Continental Airlines dropped 35 cents to $23.86.
(Wethe reports for the Fort Worth Star-Telegram.)
(c) 2006, McClatchy-Tribune Information Services.
Need to map