On Christmas day, a Nigerian man tried to ignite some kind of explosive device as a Northwest Airlines flight from Amsterdam to Detroit began its landing (Northwest is now owned by Delta (DAL). This apparent terrorist act could mean more problems for airlines in 2010.Passengers subdued the man, who was then arrested, and it is hard to tell at this point whether the device could have been detonated. The news media is already speculating about whether this is an isolated incident or part of an larger plan, perhaps by al-Qaida, to bring down aircraft flown by US and other Western carriers.
%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% Just 10 days earlier, The International Air Transport Association, which represents 230 airlines from around the world, put out a report that predicted the industry would have a $5.6 billion loss in 2010 based on high fuel prices and relatively low passenger volume.
This forecast did not take into account events like hijackings and terrorism because they are random and their effects are hard to measure. It is certainly not hard to prove that an act of terrorism on an airline means heightened airport security, making travel more stressful and inconvenient for passengers. It also means some passengers will think twice about flying for safety reasons. Both factors crimp consumer demand for air travel.
It has been eight years since a passenger tried to set off a shoe bomb on an American Airlines (AMR) flight. It may be another eight years before there is another such attempt. But the airline industry is financially fragile and anything the cuts into the public's confidence in flying could depress passenger traffic more than the industry has estimated.
Learn the most important step in structuring an investment portfolio.View Course »