Air travel hassles worse after scare; shares dip

CHICAGO Mon Dec 28, 2009 5:20pm EST

1 of 3. Travelers wait in line to check in at the American Airlines terminal in the Ronald Reagan Washington National Airport in Arlington, Virginia December 28, 2009.

Credit: Reuters/Lucas Jackson

CHICAGO (Reuters) - Frequent flyers grudgingly remove their shoes and keep liquids in tiny bottles to appease airport security, but measures imposed after a foiled Christmas Day terror plot could tempt frustrated travelers to find alternatives to commercial airlines, experts say.

A potential erosion of air travel demand, just as it recovers from an economic recession, hit airline shares on Monday, sending the Arca airline index down 2.78 percent.

The Transportation Security Administration (TSA) tightened security on international flights to U.S. destinations after a Nigerian man was charged with trying to blow up a Northwest Airlines plane over Detroit.

New measures include more bag searches and pat-downs. During flights, passengers might have to stow personal items and stay seated during parts of the journey.

Some industry experts said more security would not irk travelers, while others said the searches and restrictions are hassles that could add time and inconvenience to trips.

"If it stays as onerous as some of the press reports that are out there today, it could have a really profound effect," said Kevin Mitchell, chairman of the Business Travel Coalition.

"If that's going to be the routine, where they have choices, they're not going to travel. They'll do something with video," Mitchell said, referring to video conferencing.

He said buses, trains, cars and private planes might become more appealing to travelers than major U.S. airlines like Delta Air Lines and AMR Corp's American Airlines.

"Beneficiaries of draconian security processes on scheduled airlines would be business travelers opting out and using the services of the large fractional and managed business jet operators," said airline consultant Robert Mann.

He cited as examples NetJets Inc, owned by Berkshire Hathaway, and Flexjet, the jet time-share company owned by Bombardier.

NEW HEADACHES

Airlines chaffed at security restrictions that the Obama administration imposed in response to the incident on the Northwest flight, with big carriers reporting delays on inbound U.S. flights because of more airport screening.

At some U.S. airports, visible increased security included more bomb-sniffing dogs and security staff. Additional security can vary depending on the airport.

Airlines have had regular briefings with U.S. officials on security directives.

They have privately questioned the effectiveness of requiring passengers to remain seated during the later stage of in-bound international flights, turning off laptops and other electronic equipment, and storing personal items at that time.

The TSA now will allow airlines to decide whether to enforce some of the in-flight security rules, a source said.

David Castleveter, spokesman for the Air Transport Association, said the trade group continues to have discussions with the TSA over security. He declined to say what steps were being considered and whether measures in place would be made permanent or extend to domestic flights.

Some industry experts said the incident and the resulting security measures would have little lasting impact on airlines and passenger traffic.

"I think it is overblown," said Basili Alukos, airline analyst at Morningstar. "It is scary what happened, and thankfully no one was injured. The big unknown is the potential demand response in light of the foiled plot. I don't think we will see much reduction in flying."

"It just adds inconveniences that people have always gotten used to," said Roger King, airline analyst at CreditSights.

"I think these things are blips," he said. "They seem amateurish. Remember the shoe bomber? Because of the shoe bomber everyone has to take their shoes off, which seems like a gross overreaction."

Shares of Delta were down 5.44 percent to $11.13 in afternoon trade on the New York Stock Exchange. AMR Corp saw its shares fall 6.27 percent to $7.63. Shares of UAL Corp, parent of United Airlines, were down 5.19 at $12.41 on Nasdaq. Shares of US Airways Group were down 8.36 percent at $4.93.

(Additional reporting by John Crawley) (Reporting by Kyle Peterson, editing by Dave Zimmerman and Robert MacMillan)

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