- The Washington Times - Thursday, August 10, 2006

1:25 p.m.

LONDON — Shares of airlines and travel companies dropped sharply today after British authorities said they had thwarted a terrorist plot to blow up several aircraft flying between the United States and Britain.

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

“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 targeted United Airlines, American Airlines and Continental Airlines, according to two U.S. counterterrorism officials who spoke on condition of anonymity because of the sensitivity of the situation.

Shares of U.S. airlines were hit hard in early trading but recovered some ground by late morning. 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.

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

British Airways PLC (BA) canceled all its short-haul flights to and from Heathrow and several more services to and from Gatwick. Its shares fell nearly 4 percent 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 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 2 1/2 hours late, a spokesman said, but the airline hasn’t canceled any flights. American Airlines spokesman John Hotard said at least one London-bound flight from Chicago was canceled this morning and a later flight from London to Chicago also was canceled.

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

The ban on carry-on luggage also is likely to hurt some retailers who run tax-free franchises at airports. Retail operations are a major source of income for airport operators, such as Ferrovial SA, whose shares fell 2.8 percent in Madrid. The malaise spread to other travel companies, with British package-tour operator MyTravel Group PLC down 4 percent.

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