Queues of frustrated passengers snaked through Heathrow, Gatwick, and Stansted airports on Aug. 10, as hundreds of flights were canceled after British authorities rounded up a terrorist ring overnight that allegedly planned to bomb jetliners above the Atlantic. The arrests—and ensuing chaos at British airports—sent shudders through business and leisure travelers from Europe to Asia to the U.S.
Some financial effects were immediate. Standard & Poor's Europe 350 stock index fell about 1% on the day, and shares in major European airlines such as British Airways (BAB), Air France/KLM (AKH), and Lufthansa fell 2.3% to 4%. The three U.S. carriers that were allegedly the targets of the terrorists, United Airlines (UAUA), American Airlines (AMR), and Continental Airlines (CAL), ended the day flat to down 1%. And the dollar rose against the pound and the euro.
PLANES, TRAINS, AND… The travel industry also quickly registered the impact. Flights to London from Paris, Frankfurt, and other European cities were curtailed or canceled, while seats on the Eurostar train quickly sold out. Stranded passengers poured into airport hotels—or gave up and went home.
Clearing up the passenger backlog and getting flights back on schedule could take weeks, during one of the peak travel times of the year. Returning to normal "is going to cost the industry an absolute fortune," says Tim Stevens, managing director of consultancy Aviation Solutions on the Isle of Man.
On top of that, additional security will cost a bundle. "The airlines are frankly not in a position at the moment to absorb any more costs," says Stevens, who figures extra security expenses likely will be passed along to consumers. Concerns over added expenses at London's Heathrow lopped 3% off shares in Spanish construction giant Ferrovial, which recently agreed to buy the airport and six others in Britain for $19 billion. The stock later recovered to end the day down 1.5% (see BusinessWeek.com, 6/27/06, "Ferrovial: Building a New Future").
9/11 EFFECT. The greatest worry is what this terrorist near-miss could do to the $335 billion European travel and tourism industry. "This may cause a short-term fear of flying," says Peter Morris, chief analyst with consultancy Airclaims. Indeed, after the September 11 attacks in the U.S., global air traffic plunged by a quarter for the next few months and ended the year down 2% from record levels in 2000. European travel fell 1% in 2001.
A particular concern: While the post-September 11 travel slump mainly hit U.S. carriers, the new incident could put a damper on lucrative North Atlantic routes. Some analysts speculate that European majors such as British Airways, Air France/KLM, and Lufthansa might benefit from the fact that the terrorists were aiming at U.S. rivals. But if all North Atlantic travel sags it could hit Europeans especially hard: BA, for instance, gets 65% of its pre-tax earnings from transatlantic flights.
"It took two to three years for travel and tourism to return after September 11," says Jean-Claude Baumgarten, president of the London-based World Travel & Tourism Council. Europe, he says, has recently been "enjoying the return of American and Japanese travelers."
MEDIA INFLUENCE. Now travelers might rethink their plans—especially for visiting Britain. Jennifer Vilora, head of research at accounting and business advisory consultancy PKF in London, says the impact may rely on press coverage. "Depending on how the story is reported in the U.S. media, American tourists planning on visiting the U.K. may be deterred." Vilora notes, however, that some may be encouraged by the fact that the authorities prevented an attack before it occurred.
So far, travel groups aren't seeing a backlash. Stefanie Rother, a spokeswoman for German travel giant Touristik Union International (TUI), says the company hasn't yet registered any cancellations. The same goes for the Association of British Travel Agents in London. "We don't except major cancellations because this is peak holiday season and people still want to get away," says a spokesman. The British Tourism Board is sticking with its estimate that 31 million visitors will come to Britain this year and pump $27.6 billion into the economy, up 3% from 2005.
Still, an overall sense of nervousness could drag on results for airlines and hotel chains—and not just in Britain. "This [terrorist threat] can't be seen as just U.K.-specific," says Airclaims' Morris. Indeed, the spreading hostilities between Israel and Lebanon have hammered the tourism industry there (see BusinessWeek.com 8/10/06, "Israeli Tourism Is Savaged by War").
TRAVELERS ADAPT. Yet for all the worries, people in the travel business are surprisingly sanguine. "Over the last few years there have been several terrorist attacks and people are feeling insecure everywhere," says Sibylle Zeuch, spokeswoman for the German Travel Association.
In other words, the world has changed and travelers have adapted. Despite the September 11 attacks and the terrorist bombings in Madrid and London, people still go places. "More people are flying now than in 2000," says Mike Powell, airline analyst at brokerage Dresdner Kleinwort in London, who believes there will be little short- or long-term impact on airlines from the Aug. 10 incident.
EXPECT DELAYS. No question, going through security and getting aboard a plane will be more time-consuming and strenuous than ever. New limits may be imposed on carry-on luggage, such as the new restrictions in London against bringing liquids aboard planes.
But the good news is that the plot was stopped before anything disastrous happened. Travelers can take some comfort from the fact that sometimes law-enforcement intelligence works.
Reinhardt is the managing editor of BusinessWeek.com Europe. Scott is a reporter in BusinessWeek's London bureau.
With reporting from Kate Norton, Kerry Capell, Carol Matlack, and Joan Tarzian
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