Airline Shares Fall, Recover After Terror Scare
Aug. 10, 2006 — -- The impact of the terror plot in Britain rippled across the business world, but U.S. investors took the news calmly.
The terrorist threat, which included a plot to blow up airliners originating from London, led investors to sell airline stocks early in the day. But most of the terror-related selling was confined to the airline sector, and even the hardest-hit stocks recouped most of their early session losses by the close of trading.
American Airlines' parent AMR Corp.'s stock closed unchanged at $20.29, after having fallen earlier in the day. Shares of UAL Corp., the parent of United Airlines, fell 1.3 percent to close at $23.52. Houston-based Continental Airlines Inc. shares fell 1.5 percent to close at $23.86.
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 the 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 in 2005.
Airline analyst Ray Neidl believes that today's events will affect the airlines much like a bad snowstorm. There will be delays and issues with getting flight crews to the right place, but 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 steady. The Dow Jones industrial average, S&P 500 and Nasdaq composite index all posted gains for the day.
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 London-based plot had targeted United Airlines, American Airlines and Continental Airlines, according to two U.S. counterterrorism officials.
The price of crude oil fell on concerns about the effects on the airline industry of this latest terrorist plot. Crude oil prices dropped more than $2 a barrel, Thursday, as the thwarted airplane attacks led many carriers to cancel flights, which could mean dampened jet fuel demand.
Wire stories contributed to this report.