BA slide gathers pace as fears grow over slump in air travel

British Airways shares continued their freefall yesterday in the wake of the terrorist attacks on the US, sliding by a further 16 per cent and pushing the company closer to expulsion from the blue-chip FTSE 100 index.

Airline stocks across Europe also fell, as did shares in cruise companies, hit by fears of a collapse in US bookings and concern that tightened aircraft security would force terrorists to switch targets. BA's troubles were made worse when Standard & Poor's put the airline on negative credit watch along with all US airlines and Air Canada. BA has now lost 38 per cent of its value since the devastating attacks on the World Trade Centre and Pentagon on Tuesday, reducing the airline's market capitalisation to £1.8bn.

The airline's huge exposure to the transatlantic market – which accounts for some 140 per cent of its profits – lies behind the dramatic share price fall. Other European flag carriers have also been affected, although to a lesser extent. Shares in Lufthansa and KLM fell by just under 10 per cent.

In addition to damaging BA's lucrative transatlantic business, analysts fear the terrorist attacks have also put paid to BA's hopes of forging an alliance with American Airlines, one of the two carriers whose jets were hijacked.

The markets were further unsettled by the collapse of Ansett, Australia's second biggest airline. Administrators were called in on Wednesday and grounded the airline altogether yesterday morning after deciding that it did not have enough cash and credit facilities to continue operating.

Although not a direct result of the US attacks, analysts fear that more airlines will fail as passenger levels slump and the costs of implementing new safety and security procedures mount. Some forecasts suggest US domestic air travel could fall 50 per cent. Transatlantic travel is predicted to decline by at least as much as it did during the Gulf war a decade ago and perhaps more. Then, traffic fell 25 per cent.