Terror plot puts airlines into tailspin

Shares in European carriers fall. London market recovers early losses. CBI tells firms to plan

Shares in Europe's airlines fell sharply yesterday after Scotland Yard said it foiled an alleged plot by terrorists to blow up aircraft en route to America.

Security at airports in the United Kingdom, across Europe and in the United States was quickly tightened, causing lengthy delays and cancelled flights.

Shares in British Airways, which scrapped about 90 per cent of short-haul flights to and from Heathrow and some services from Gatwick, fell 19.75p to 370.25p in their steepest decline for seven weeks. BA's long-haul flights were severely delayed.

The no-frills airline easyJet fell 8.75p to 414p as it cancelled all flights from Gatwick, Luton and Stansted amid passenger congestion caused by security checks. Its Dublin-based rival, Ryanair, whose shares dropped 11 cents to €7.42 (£5), reported similar disruption, largely at Stansted. The airline said it would not charge passengers for hand luggage that must now be checked in.

Across Europe, Air France-KLM, Germany's Lufthansa, Spain's Iberia, Greece's Olympic and Alitalia of Italy all suffered sharp declines in their share prices as flights were severely disrupted.

Transatlantic routes accounted for £1.6bn of BA's £8.5bn total revenues last year, but the airline said it was far too soon to calculate the likely cost of yesterday's disruptions.

Experts were divided over the probable impact on British business over the longer term.

Some feared that the magnitude of the latest plans could hit the travel industry generally, and airlines in particular, hard.

One said: "There's no question that this was incredibly close to something the size of a 9/11, not a 7/7 or Madrid. And there's no question that this will have a bigger impact on the travel psyche than either of those two.

"The Atlantic market is clearly going to be most affected. People get more nervous about long-haul because if it all goes wrong they can't just jump in a car."

Others were more relaxed about the economic threat. Holger Schmieding, at Bank of America, said: "Consumers and business people are unlikely to change their travel and spending habits by enough to affect the macro data for long." His view was shared by Thushani Gajasinghe, at the Centre for Economics and Business Research. She said: "The only effect is likely to be extra security checks, which will take up time that would otherwise have been productive. People travelling are unlikely to change their behaviour."

Jim Wood Smith, the head of research at the stockbrokers Christows, said the reaction would have been much greater had there actually been another attack.

"The market has learned how to react to days like this in the five years since 9/11 and the shock waves should be short-lived," he said. "If we ask whether today will derail the long-term growth of air travel, or the ongoing market share gains of the budget carriers, the answer is no."

The accountants Grant Thornton put the cost to the UK economy at a minimum of £10m a day. Richard Lambert, the director general of the Confederation of British Industry , said it was too early to assess the impact of the latest scare. But he urged all companies to have comprehensive contingency plans in place to protect their customers, staff and business when the unexpected occurs.

Meanwhile, although the group Smiths was the second biggest faller in the FTSE 100 yesterday, on account of its extensive airline business, the company was thought likely to benefit in future from tighter security controls at airports. The company is the world's leading supplier of detection equipment to ports, airports and government buildings.

Two weeks ago it delivered two walk-though portals designed to detect passengers carrying drugs and explosives to Customs and Excise at Heathrow and Manchester airports.

The Sentinel portals emit a blast of air as the passenger walks through, dislodging minute particles which are then instantly analysed. Smiths also manufactures a range of biological, infra-red X-ray scanners and millimetre wave scanners.

Smiths said yesterday that sales for the year to 27 September would be 17 per cent higher than in the previous 12 months while headline profit would grow at a faster rate.

Analysts expect sales from the group's fast-growing detection business to increase by about one-fifth this year to £450m.