Recent Terror Attempt Causes Airline Stocks To Plunge

By Julie Smith on December 31, 2009, 8:03 am

Shareholders and investors seem to shying away from airline stocks as news about Christmas’s failed terrorist attack continue to come in. On Monday December 28, 2009, Al Qaeda claimed responsibility for the failed attack and warned that future attacks were imminent. Al Qaeda claimed the attack was retaliation against US strikes which took place on Yemen soil.

On Friday, December 25, terror suspect Umar Farouk AbdulMutallab allegedly snuck an explosive device onto an airplane with the intent of destroying the plane over United States soil and killing all 300 passengers and crew aboard the plane. AbdulMutallab carried a device on the flight, bound for Detroit from Amsterdam, which contained enough explosives to blow a hole in the side of the plane.

According to authorities, AbdulMutallab went through standard security procedures, including having his bag scanned before boarding the flight. It is unclear how AbdulMutallab snuck the explosive device onto the plane, but airports have been taking excess precautions to ensure it does not happen again. Many believe the airlines will further enhance their security efforts and in flight security will be enhanced, which may prevent passengers from holding anything in their lap within an hour of takeoff and landing.

 

Due to concerns, shares of airline stocks have been down in the first day of trading since the incident. Shares of Southwest Airlines (LUV) were down about 2%, shares of Delta Airlines (DAL) were down about 4.50%, and shares of US Airways (LCC) were down about 6.50% on Monday December 28. Investors appear to by shying away as they are concerned the increased security concern will lead many travelers to cancel flight plans, and new safety precautions will lead to increased costs for all major airlines. In an industry where profit margins are already insufficient, lost revenue and increased costs will significantly hamper investor return.

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