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Carriers may feel fallout from bomb plot

Their stocks dive on investor fear of what an attempt on a Northwest Airlines flight could mean for the industry. Additional security measures in place since the incident could discourage travelers.

December 29, 2009|By Martin Zimmerman
  • Long lines greet travelers at LAX. The U.S. boosted security after what authorities say was an attempted terrorist attack Friday on a Northwest flight. Airlines report the new in-flight rules are already being eased.
Long lines greet travelers at LAX. The U.S. boosted security after what… (Mark Boster / Los Angeles…)

Just as U.S. airlines were showing signs of recovering from the deepest recession in decades, the industry is facing the prospect of painful financial fallout from the thwarted Christmas Day attack on a Northwest Airlines jet.

News that the government had mandated tighter security procedures in the wake of the attempt -- apparently including an edict that passengers remain in their seats during the final hour of a flight -- raised concerns that many travelers might opt not to fly just to avoid the hassles.

"Airlines don't make money on holiday travelers. They make money on business travelers," said Joe Brancatelli, editor of JoeSentMe, a business travel website. "And if they show up on Jan. 4 for their first flight of the new year and the security lines are insanely long, that will affect business travel. On domestic short-haul trips, they won't fly. And on international trips, they just won't go."

Airline shares tumbled on such fears Monday. Shares of AMR Corp., owner of American Airlines, sank 4.8%. Delta Air Lines Inc., which owns Northwest, dropped 4.1%.

A Bloomberg index of airline stocks slumped 2.9%, and all 13 of its members were in the red for the day. Before Monday's sell-off, the index had soared 145% since early March on hopes that the slowly improving global economy would boost air travel -- especially by business travelers, the bread and butter of most airlines.

The federal Transportation Security Administration released little specific information on the heightened security measures imposed after what authorities have called an attempted terrorist attack on a Northwest flight Friday from Amsterdam to Detroit. A Nigerian man has been charged with carrying an explosive device onto the plane.

A statement on the TSA's website said the agency "put additional security measures in place to ensure aviation security remains strong. Passengers traveling domestically and internationally to U.S. destinations may notice additional screening measures."

Passengers on international flights over the weekend said that, in addition to being confined to their seats for the last hour of the trip, they weren't allowed to open overhead bins or use personal electronic devices or blankets, and were told to keep their hands where crew members could see them.

But airlines were reporting Monday that the new in-flight restrictions were already being eased, allowing the aircraft captain to decide whether passengers should be allowed to get out of their seats during the last hour of a flight. The government didn't confirm these reports.

"Essentially, our customers today should have a pretty normal flight experience," American Airlines spokesman Tim Wagner said.

"Those departing on flights for the U.S. from international airports will still undergo additional screening, so we still want them to arrive three hours before departure. Outside of that, we have no additional recommendations."

The Air Transport Assn., the lobbying group for the major airlines, declined to comment on the government's security response or about the effect it would have on the industry.

"It's much too early to tell what, if any, impact this will have on the airlines' business," association spokesman David Castelveter said. "We have been closely coordinating with TSA on the implementation of these new measures to minimize their impact on travelers."

There already was some backlash from business travelers against the increased precautions.

"The restrictions ordered by the Transportation Security Administration on passenger movement and use of personal items during the one-hour period prior to landing in the U.S. would defy logic," said Kevin Mitchell, head of the Business Travel Coalition, an advocacy group for business travelers.

"Someone wanting to terrorize would simply endeavor to do so 65 minutes prior to landing, or during the beginning or middle of a flight," he said.

At San Francisco International Airport, hundreds of people were lined up early Monday morning waiting to clear a security checkpoint. Getting through took so long that a number of people missed their 6:25 a.m. Southwest Airlines flight to Los Angeles International Airport, including Patrick Sheehan, a 26-year-old L.A. architect who travels several times a month.

"I thought it was not going to be a problem. It's usually just a breeze," he said. He added that he was bothered by the attitude of some TSA staff members, who he said seemed to be "making fun of travelers in a hurry."

Experts said it was difficult to gauge whether the Christmas Day incident would drive passengers away from airlines because of the holes revealed in airport security measures.

After the Sept. 11, 2001, terrorist attacks, the Bloomberg airline index plummeted 40% when trading resumed on Wall Street the following week. Besides temporarily grounding the entire airline fleet and sending the travel industry into a tailspin, the 2001 attacks led to more stringent security measures.

By early March 2002, with no successful subsequent terrorist attacks, the index had recovered all of its post-9/11 losses.

The intervening years haven't been kind to the industry, with a number of airlines going into bankruptcy. The airline stock index remains down 65% from its March 2002 high.

Friday's incident was having a positive effect Monday on stocks that could benefit from heightened security efforts. For example, shares of OSI Systems Inc., a Hawthorne maker of airport security equipment, shot up 11%.

martin.zimmerman@

latimes.com

Times staff writer Tiffany Hsu in San Francisco contributed to this report.

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