Industry Recovery May Suffer

The alleged London terrorist plot and its airport-snarling aftermath won’t send the travel industry into a tailspin, experts said Thursday, but it was still unwelcome news for a key economic sector just recovering from the Sept. 11 attacks.

“As we have seen after previous terrorist events -- 9/11, Madrid, Bali and the London bombings -- the world will still fly,” said Bank of America analyst Robert Stallard.

How often business and leisure travelers continue to fly, or whether they postpone trips, remains to be seen.

“There’s a certain fraction of the air travel population that has severe anxiety about travel, and when you push them over the edge, you take them out of that seat,” said Skip Hull, vice president of CIC Research in San Diego. “This just made it tougher.”

There were already signs that the alleged London plot and the new security procedures that led to long lines at airports around the country might scare off some business travelers, the airlines’ most lucrative customers. Some businesses were urging employees to curb travel.

“I don’t think this is the tipping point where people stop traveling for business,” said Kevin Mitchell, chairman of the Business Travel Coalition in Radnor, Pa.

“But I think it’s a cumulative effect where, if I used to take 10 trips in a quarter, now maybe I’ll take six or seven and do the rest by telephone conference,” he said. “And that’s where the economics fall apart for the airlines.”

On Thursday, at least, travelers were holding steady.

Hotels, travel agents, airlines and tour operators have not seen a rush of cancellations, although many were taking a wait-and-see approach before forecasting the full effects.

Joe McClure, president of Montrose Travel, said he sold 13 Los Angeles-to-London trips Thursday, losing only one existing booking on the route to a cancellation.

“I was pleasantly surprised,” he said. “I expected a much stronger ripple effect than we’ve seen so far, although I don’t believe the dust has settled yet.”

Bob Kern, president of PNR Travel in Marina del Rey, fielded about double the normal volume of calls from clients, but they were mostly inquiries about the new security procedures and questions about possible flight cancellations.

“We haven’t had one cancellation yet,” he said. “I think people have gotten used to these things.”

And a Little Tokyo travel agency reported no cancellations, even though tourists from Japan have been among the slowest to resume travel to the U.S. since 9/11.

“So far, nothing,” said Mitsu Mano, an agent at New Japan Travel. “No panic yet.”

Travel industry officials put the best face on Thursday’s events, noting that heightened security helped foil the suspected plot and that no one was killed or injured.

“The system worked and they caught these guys,” said Roger Dow, president of the Travel Industry Assn. in Washington. “From my perspective, this is very good news. People are safer than they were years ago.”

Although Hull of CIC Research was less sanguine, he did note that British tourists are known as a resilient bunch, especially compared with those in the Asian market. That could be important in Southern California. Last year Britain replaced Japan as Los Angeles’ No. 1 source of tourists.

At the airports, travelers were adapting to the new security measures, dumping lipstick, contact solution and toothpaste out of their purses and carry-on luggage.

At Ontario International Airport, 74-year-old Ann Levesque of Upland arrived extra early in preparation for a trip to Atlanta to visit her daughter and grandchild.

“We can’t let them win,” she said, referring to terrorists, “so we have to keep traveling.”

Experts note that travelers who a few years ago balked at not being allowed to carry on cigarette lighters and nail clippers have learned the new rules. While going through security, most automatically take off their shoes and belts and empty their pockets.

“This is the new normal,” said Carl Winston, director of the hospitality and tourism management program at San Diego State University.

“We want to be safe -- we’re ready to go through ridiculous inconvenience to get from point A to point B.”

Dow of the Travel Industry Assn. agreed: “The traveling public is a phenomenally adaptive group. They move on and adjust accordingly.”

For the airlines, the fear factor may be less of a problem than the hassle factor for its most valued customers -- business travelers.

Longer waits at security checkpoints and the prospect of not being able to carry laptops or overnight bags on planes will have an effect, said Mitchell of the Business Travel Coalition.

Business travelers are valuable to airlines because they fly frequently and tend to pay higher ticket prices. According to Mitchell, business travelers make up about 30% of U.S. airline passengers but account for 60% of fare revenue.

There were scattered reports Thursday of companies reining in their road warriors.

“As far as additional travel, we have requested that people not travel if possible,” a spokesman for computer giant Dell Inc. said. “Obviously, business needs will dictate that. Right now we are asking people to limit or not travel at all if possible.”

Analysts said the airlines might suffer in the short term as they struggled to repair the damage from Thursday’s disruptions and travelers adjusted to new security measures. But the industry shouldn’t hit a deeper slump unless a new terrorist scare occurs.

“If there aren’t further developments in terms of successful attacks or evidence of a wider plot, I wouldn’t expect this to have a significant impact on the airlines,” said Philip Baggaley, airline analyst with Standard & Poor’s Corp.

“Fortunately, the summer travel season is mostly over. The timing isn’t as bad as if it had occurred in May or June.”

Baggaley’s scenario would be a welcome one for investors, who have been waiting five long years for the airlines to recover from the trauma of 9/11.

Air travel in the U.S. plummeted by 20% after the 9/11 attacks, and airlines cut more than 100,000 jobs. As a whole, the airline industry has lost money every year since 2001, and four major carriers have landed in U.S. Bankruptcy Court.

This summer has provided the first solid signs that the industry was stabilizing. The carriers cut capacity and avoided costly fare wars as the healthy economy drew more Americans into the skies. Planes are flying with few empty seats. Delta Air Lines Inc., in a report typical of many others, recently said it filled almost 86% of its seats in July -- an all-time high.

Even record jet-fuel prices didn’t scuttle the rebound. Not including bankruptcy-related costs, most of the major carriers reported solid profits for the second quarter.

Wall Street clearly is betting that the alleged terrorist plot represents no more than a temporary setback. After falling in early trading as investors absorbed news of the suspected plot, shares of most big U.S. carriers ended the day down marginally, if at all.

Whether the optimistic outlook prevails won’t be known for several days, analysts agreed.

“Americans will continue to fly,” said airline consultant Michael Boyd. “But if the hassle factor becomes ridiculous, that will cut down on air travel. And that will really hurt the airline industry.”

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Times staff writers Claire Hoffman and Ashley Powers contributed to this report.