Aer Lingus is to press ahead with its September privatisation despite heavy selling of airline shares after UK security authorities foiled terrorist attacks on transatlantic flights yesterday. Emmet Oliver reports.
Airline stocks in the UK and US fell sharply in early trading on fears of a reduction in transatlantic traffic. British Airways bore the brunt of the sell-off. Its shares fell 5 per cent in London. Rivals such as Lufthansa and Air France-KLM also suffered declines. Shares in EasyJet and Ryanair also fell 2 per cent and 3.4 per cent respectively
US airlines that operate transatlantic routes, including American Airlines, Continental Airlines and United Airlines, had more modest falls. Continental Airlines shares, dropped 1.45 per cent, AMR, the parent company of American Airlines, was unchanged, while United Airlines was down 1.3 per cent before recovering.
News of the plot initially unsettled financial markets. European and Asian shares suffered sharp falls but steadied after Wall Street opened firmer.
Oil prices dropped sharply as investors took the view that security worries might lead to a reduction in air traffic.
"Its business as usual as far we are concerned," said Aer Lingus chief executive Dermot Mannion. "This is an industry subject to major security incidents, but the privatisation process is rolling. This is a hiccup, but these things happen in this industry," he said.
Aer Lingus has a significant trans-Atlantic business, carrying about 1.2 million passengers per annum. It derives about one-third of its profits and turnover from this business. Analysts said while US originating passengers might be less likely to fly to Europe, this could be offset by Irish passengers avoiding US carriers and switching to Aer Lingus.
Stuart Draper, head of research at Dolmen Securities, said the foiled attack in the UK did not come at a good time for Aer Lingus. It was facing pressure on the cost side because of high oil prices and pressure on revenue from additional Ryanair services. He said a third element was now present because of the security concerns.
"Most companies have a price where they become attractive. Clearly these three factors are going to have to be factored into the price," he said.
Some analysts warned the prospect of a renewed terrorist threat could damage a nascent recovery in the US air market.
Cost cuts and booming passenger numbers, now higher than before September 11th, 2001, helped most US airlines reach profit in the three months to June 30th, after a combined loss of $40 billion (€31.3 billion) in the past five years. But US carriers are relying more on higher margin transatlantic routes. BA, which makes most of its profit from transatlantic flights, said it was impossible to determine yet the long-term cost or impact of heightened security measures.
Analysts also expressed concern that extra security checks will now be imposed by authorities in Europe and the US and this will impose additional costs on the industry.
There is also concern that a ban on hand baggage, imposed on flights leaving the UK yesterday, could become permanent. This would also impose additional costs on airlines and could impact on the quick turnaround of aircraft. At present low-cost airlines turn around planes in approximately 25 minutes, but this could be threatened by new regulations.
Joe Gill, head of research with Goodbody Stockbrokers, said long-haul carriers were more exposed than short-haul European operators.
Mr Draper of Dolmen said the industry had proven very "resilient" over recent years despite many challenges. He said even in the aftermath of the London bombings the industry had emerged relatively unscathed.
- (Additional reporting, Financial Times service)
