CAPA comment on the London bomb scare


Short term cancellations, but overall demand likely to be resilient

In the short term, the shock waves through the media will undoubtedly temporarily result in some reduction in flight bookings and some cancellations – maybe a few percent.

But passengers today are very resilient and less ready to over-react to what, at this stage, appears to be a particularly UK-US series. (The positive is that it appears that intelligence was sufficiently good that it stopped the threat. Nonetheless there will be a considerable consumer backlash, particularly in the UK, where the information impact is greatest. After Sep-11, some major airlines actually had negative booking levels – ie there were more cancellations than new bookings)

This could prompt airlines in the short-medium term to offer more discounts to keep load factors up, within Europe and on flights to and from Europe and the US.

But with all the other forces at work in the market, these effects are likely to be only part of the overall changes, as fuel prices bite and economies slow.

In turn, this will impact on some airline share prices – UK and US carriers particularly immediately saw share price falls of 5% and more.

This is peak season in the North Atlantic and a time when many less-frequent travellers take to the air; they are the ones who are more likely (i) to be affected negatively by the terror threat and media coverage and (ii) paradoxically, to be attracted back into the air by cheap prices.

It will also hurt airport shares, especially in the UK and especially at London airports. BAA’s share price has already suffered. Temporarily at least it will have a negative impact on the sales of duty free liquor at point of departure – at least until tamper-proof containers and procedures are introduced.

Security watershed

This does however mark a watershed in airport and airline security. In the past the focus has been on screening for weapons and similar implements.

Here the problem has been elevated to another level, where a combination of substances can become life threatening. The main ingredient is a liquid chemical, as well as components which can be well disguised in a laptop, MP3 music player or camera.

So it looks for the time being at least that there will be a blanket prohibition on any of these ingredients on board – at least on flights involving the US and UK.

Hand baggage will probably never be the same again – at least for UK, US flights. This promises to be a significant inconvenience for travellers, especially on long haul flights – as many flights are in the Asia Pacific region. (For the time being, only wallets and passports, in plastic see-through packets, are permitted, but laptops or MP3 music players are not).

This could be a great inconvenience to passengers; a 15 hour flight is already a tough proposition and many passengers have their own preferred ways of passing that time, whether it is playing computer games, working on a laptop, listening to an MP3 music player, or even just reading a book.

As time passes, and the immediate risk (and ways of responding to that risk) will become more sophisticated and less intrusive on travellers.

Meanwhile however, this imposition probably takes consumers through one more resistance level. They have already become uncomfortably aware of small seats and crowded aircraft, hassles at airports, unreliable in flight entertainment, reduced food quality, queues for fewer toilets etc.

At the same time, although the threat appears to be very specific to the US/UK and specially to US airlines, the same logic and methodology is applicable to all air services. So we can expect that there will be lasting effects on airport security worldwide and changes in carry-on baggage rules. These will probably not be the blanket rules that are temporarily being applied, but we should expect significant lasting changes

Asia Pacific impacts

For the Asia Pacific region, there is immediately a much more limited impact – mostly to services involving the UK and US (where both now have the highest levels of security emergency – but even there they have different descriptions “critical” and “red”) will be slowed down, with many delays especially in the very short term.

We can expect authorities in the Asia Pacific region also to be much more vigilant in security checks, which will also lead to some delays on flights within the region.

Security policy

However, one important lesson out of this event is that the most effective place to spend money and resources is in pre-emption well before anyone gets on an aircraft. Part of the visible security measures is there for little more than to reassure the public and to respond to political pressures and this has skewed spending and costs disproportionately.

As time passes, the system adjusts and gradually becomes more practical (example: although no-one in the history of aviation has used a sharpened airline-tray knife to hijack an airline, airlines all over the world were obliged to move to using plastic knives.

Low cost carrier (LCC) impacts

Stricter controls on hand baggage could be bad news for the evolution of the LCC model at a time when they were beginning to charge passengers for checked baggage, in order to encourage them to carry more in the cabin. This reduces handling costs and and aircraft turnaround time, giving LCCs greater asset utilisation.

Aircraft manufacturers were looking at installing larger inflight baggage bins as a result.

LCCs, at least in Europe, like Ryanair, may be worse affected, perhaps in the long term too.

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