Another grievous blow to a suffering industry

Airlines

The crash of Flight 587 could not have come at a worse time for American Airlines or the rest of the world's flag-carriers, reeling as they still are from the events of 11 September and the steep downturn in air travel.

Although the precise cause of the latest airline disaster to befall New York remains unclear, analysts warned the effect was bound to be a renewed plunge in the confidence of air passengers and investors alike.

As New York-bound travellers once again found themselves marooned at Heathrow and other airports around the world, the price of airline stocks plummeted.

Shares in American Airlines, the world's second biggest carrier, led the decline, falling by more than a quarter at one stage as investors reacted to the latest blow to the company's prospects.

Faced with losses this year running into billions of dollars, American Airlines has already been forced to lay off some 20,000 of its 110,000 workforce and to cut flight schedules by about 20 per cent.

American Airlines is not alone in feeling the effects of 11 September. British Airways is heading for a loss of £775m this year, according to its in-house broker, while the former chief executive of United Airlines, the world's biggest carrier, warned last month that it could "perish next year". He was sacked shortly afterwards.

In the third quarter, American Airlines suffered a loss of $414m (£284m) despite receiving $508m in emergency aid from the US government to help with its post-11 September recovery.

Don Carty, the airline's chairman, said the terrorist attacks had had "a staggering effect" on American's overall financial performance.

Until yesterday's crash of the American Airlines Airbus A300, analysts were pencilling in a fourth-quarter loss of $815m. These estimates will almost certainly have to be revised after the latest tragedy.

American is the world's second biggest airline by passenger numbers, flying about 100 million people a year. But in October, its traffic levels were down 28 per cent and analysts fear a renewed slump in passenger confidence.

The airline was already on the back foot after one of its Boeing 767s crashed into a tower of the World Trade Centre and then a Boeing 757 went into the Pentagon in Washington DC on 11 September. This latest crash will deliver a devastating blow to its reputation.

Standard & Poor's, the US ratings agency said the crash was "likely to cause a near-term decline in passenger traffic" for American "and possibly for others". It added: "The severity of the effect on American's traffic will depend on what the cause of the incident is determined to be," Standard & Poor's said.

The ratings agency added that "an extended period of uncertainty regarding the cause would also depress passenger traffic."

Even more than other airlines, American relies upon a huge throughput of flights and passenger numbers through its domestic "hub" airports such as Dallas\Forth Worth and Chicago's O'Hare airport. These so-called "hub and spoke" operations depend, crucially, on maximising flights and minimising check-in times. But the events of 11 September and the increased security demands on airlines have severely dented the economics of such operations.

American Airlines' long-haul business has also suffered dramatically in the aftermath of 11 September.

Figures released yesterday by the British airports operator, BAA, show that transatlantic travel between the United States and the UK was down by 31 per cent with passenger numbers at Heathrow during October down by about 20 per cent.

American is seeking approval from US and European regulators to merge its transatlantic services with those of British Airways – a deal which, in turn, would lead to a "open skies" agreement between the two countries.

Yesterday's tragedy makes such a deal even more imperative, analysts said.