Airline Shares Fall on Terror Scare - KLTV.com - Tyler, Longview, Jacksonville |ETX News

8/10/06

Airline Shares Fall on Terror Scare

The impact of the terror plot in Britain is rippling across the business world, but so far, U.S. investors have taken the news calmly.

While the Dow industrials were up by midday, airline stocks have taken a major hit.

The terrorist threat uncovered by British authorities, which included a plot to blow up aircraft of flights heading out of London, led investors to sell airline stocks early in the day.

Shares of U.S. airlines were hit hard in early trading but rebounded slightly by midday.

American Airlines parent AMR Corp.'s stock fell 1.7 percent to $19.95. Shares of UAL Corp., the parent of United Airlines, fell 1.5 percent to $23.47. Continental Airlines Inc. fell 1.2 percent to $23.93.

The news came at a particularly tough time for the airline industry, which had been on track for its first profitable summer since the Sept. 11 terrorist attacks sent the industry into a long slump. American, United, Continental and US Airways all posted profits in second fiscal quarter of 2006.

From 2001 to 2005, U.S. airlines lost $35 billion, according to John Heimlich, chief economist at the Air Transportation Association. His group projects that for 2006, the total loss will be only $0.5 billion compared with $5.7 billion 2005.

Airline analyst Ray Neidl believes that the events today will affect the airlines much like a bad snowstorm. There will be delays and issues with getting flight crews to the right place, but that there shouldn't be any significant impact on the industry. Bookings will most likely not be affected. If the thwarted attack in London does have any effect, it will take a few days before analysts can sort it out.

Other Stocks Hold Firm

Aside from the airline stocks, however, the major market indexes remained mostly steady. The Dow Jones industrial average, S&P 500 and Nasdaq composite index all posted modest gains by midday.

ABC News business correspondent Betsy Stark said investors' fears were eased because law enforcement officials prevented a calamity and the backdrop of a dangerous world is a well-known risk.

Other analysts agree the impact won't be immediate.

"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, American Airlines and Continental Airlines, according to two U.S. counterterrorism officials.

The price of crude oil is down on concerns about the effects on the airline industry of this latest terrorist plot. Crude oil prices fell more than $1 a barrel Thursday as thwarted airplane attacks led many carriers to cancel flights, which could mean dampened jet fuel demand.

Wire stories contributed to this report.

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