Bomb alert fuels Europe sell-off

Airline and travel shares have fallen across Europe after Scotland Yard said it had disrupted a plot to blow up planes flying between the UK and US.

Security at all UK airports has been tightened and flights cancelled, resulting in long delays and fears that the problems will hurt businesses.

The FTSE 100 fell more than 1% with shares in British Airways down 5%.

Analysts said that the costs to business would depend on how quickly normal services resumed.

Shock waves

BA said it was too early to estimate the cost of the disruption, adding that it had temporarily halted all short-haul flights to and from Heathrow.

Airport operator BAA said that Heathrow had been closed to all incoming flights not already in the air and warned passengers to stay away. BAA was bought by Spain's Ferrovial in June, and its new owner's shares dropped 2.6% in Madrid.

Other airline shares also fell, including Easyjet, which shed 2.8%, and Ryanair, which lost 3.3%. Duty-free operator Alpha Airports slid 3.9% and holiday firm MyTravel fell 5%.

Shares in German airline Deutsche Lufthansa dropped after it announced that it had cancelled all flights to the UK until at least 1200 GMT.

Air France-KLM, Europe's largest airline, said it had halted flights from Paris and cancelled some from Amsterdam.

Spain's Iberia, Italy's Alitalia and Greece's Olympic Airlines all have halted services, while Brussels airport has stopped all fights to London.

Ryanair said that it would not be charging passengers for hand-luggage that has to be checked in to the plane's hold. FlyBe, one of the first budget airlines to introduce charges for baggage that is checked in, said it had suspended the fees.

Business heart

The worry for many firms is that, while the short-term costs may be limited to a couple of days, consumers may develop a heightened and longer-term fear of flying that would prompt them to cancel trips and put off holiday plans.

Travel companies went through a very difficult period following the 11 September attacks in the US, and any dip in consumer demand could hit earnings that already are under pressure because of record oil and fuel costs.

"This is at the very heart of business," airline consultant Derek Jewson told BBC News 24, adding that about 1,000 business people flew in to London every day and any disruption would hit service firms such as taxi companies.

Marco Rivaro is a trader at Merrill Lynch in London and had to cancel a two-day business trip to Italy because of the problems.

"The most important meeting is on Friday, so I will see if I can get out there later today or tomorrow," he said. "Otherwise I will have to cancel hotel bookings and internal flights."

A spokesman for airport retailer Alpha said that passengers booked on flights to the US were not being allowed to take anything in glass bottles onto planes - hitting sales at duty-free shops.

'Bounce back'

The timing of the alert has come just as the global tourism industry has been pulling itself out of a trough prompted by earlier terrorist attacks, an outbreak of the deadly SARs virus and the Asian Tsunami.

According to a report by tourism group VisitBritain, the number of US and Canadian visitors to the UK rose by 9% in the first six months of 2006 from a year earlier, while visitors from western Europe increased by 6%.

Henk Potts, equity strategist at Barclays Stockbrokers, said that the latest bomb plot highlighted the "risks in investing in the airline sector".

However, he added that "markets tend to be pretty resilient".

"When we have seen events in the past, such as the London attacks, stocks have bounced back," Mr Potts explained.

"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," he said.

One positive is that the majority of problems have been limited to passenger flights. BA said its cargo services from Stanstead airport were running as normal, though there may be delays due to air-traffic control problems.

http://news.bbc.co.uk/1/hi/business/4778747.stm