Airline stocks plunge again as crisis confronting aviation sector deepens

Airline stocks plunged yesterday as the American Airlines crash in New York sent fresh shudders through world stock markets and renewed anxiety among investors.

Shares in British Airways fell 6 per cent as fears grew that the latest disaster would result in a further decline in passenger confidence and traffic levels. BAA, the airports operator, also suffered in the wake of the crash and its shares fell by 5 per cent.

Earlier, BAA said North Atlantic traffic numbers were down 31 per cent in October, contributing to a 12 per cent fall in overall passenger levels across its seven UK airports. Heathrow was the worst affected with traffic down by 20 per cent.

In the US, American Airlines shares fell by 28 per cent before recovering slightly to show a fall of about 15 per cent. Other US airline shares also fell though by lesser degrees. Airline and travel industry stocks were also hit across Europe. Club Mediterranee, Europe's largest resort operator, fell as much as 15 per cent to 34 euros (£20.84). Preussag, Europe's largest travel company, lost as much as 8.6 per cent to 26.25 euros, while the number two Airtours declined 6 per cent to 181.5p. Accor, the fourth-largest hotel company tumbled 5.4 per cent, and Hilton Group, Europe's second-biggest hotel company, fell 7.8 per cent

Stock markets came off sharply as news of the tragedy broke shortly after 2.15pm UK time but regained strength as US authorities indicated the cause of the crash was as likely to be an accident as it was terrorism.

The Dow Jones Industrial Average hit an intra-day low of 9,409.21, a fall of 198.79, while the FTSE 100 slid as much as 178.9 to 5,065.3. The FTSE 100 closed down only 98 points at 5,146.2 as the Dow regained its composure to trade at less than 65 points below its open during afternoon trade.

Both indices remain comfortably above the four-year lows touched on 21 September.

There was predictable rotation into defensive stocks, such as Allied Domecq, British American Tobacco and Gallaher, as well as shares in companies whose profits come mainly from the UK, including Dixons, Compass Group and Capita. British Airways and aero-engine maker Rolls-Royce, along with the traditionally volatile fund management groups, suffered heavy selling.

Fund managers and strategists voiced concern over what effect the tragedy would have on already fragile consumer confidence, regardless of whether a terrorist link is established, and despite the likelihood of further interest rate cuts. But some said the markets had become resilient to bad news.

"This can only be bad, although it does make a huge difference what the cause turns out to be. If it is terrorism, this could well push economic recovery into 2003," said Jason James, a European strategist at HSBC.

Mike Bishop, a fund manager at Norwich Union, said: "There are a lot of investors whose mentality is to put money into the market if there's a setback of 10 per cent. I don't think we'll see September lows again."

Any terrorist involvement would be a reminder that the military campaign was likely to be lengthy, said John Hatherly, head of investment research at M&G. "The market would recover from confirmation that it is terrorism. People in a sense are inured. They have got used to the war – it's had remarkably little effect on the markets."

He warned that any broadening of the US military conflict beyond Afghanistan to other states, such as Iraq, posed the greatest risk to investor sentiment.

Others in the City were more pessimistic, noting that base rates in the UK and US had already been taken to more than 37-year lows in the wake of September's terrorist atrocities via moves by central banks to prevent the global economic slowdown becoming outright recession.