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Corporate Britain soars above bomb plot scare

Oliver Morgan

BRITAIN WILL shrug off the financial impact of the airline bomb plot that led to severe disruption to air travel and the cancellation of hundreds of flights from airports across the country. Airlines and tourism agencies claim the impact of the stoppages will not lead to a prolonged slump in travel or a surge in security-related costs. And economists say knock-on effects to the wider economy will be minimal, with only a dampening effect on third-quarter growth, but little impact on consumer spending or on equity markets.

Ross Walker, economist at the Royal Bank of Scotland, warned, however: "Were there to be any similar incidents in the next few months that would be more serious. It is not going to have a major impact, perhaps 0.1 or 0.2 percentage points of third-quarter GDP. There won't be a big impact on consumer spending."

Douglas McWilliams of the Centre for Economics and Business Research said the majority of U.S. travellers who might be put off would have already stayed away after the July 7, 2005 bombings in London combined with the impact of the strong pound against the dollar.

On Friday, the FTSE index reacted resiliently, ending almost unchanged. Airport operator BAA confirmed that 900 of more than 3,000 scheduled flights from its seven U.K. airports were cancelled last Thursday, and 300 on Friday, but said it was too early to say what the financial impact on the aviation industry would be.

British Airways claimed that, providing there were no further incidents, the impact on its profits would be less than that from stoppages over recent summers. Last year, operations at Heathrow were closed for two days during a dispute between unions and caterer Gate Gourmet that cost BA $76 million. Sources say a figure closer to $19 million would be more realistic this time.

A spokesman for tourism group VisitBritain said that there would be "no significant" impact on tourist numbers. Last year, an estimated $1,420 million that might have been spent by visitors was lost after the July explosions, but the recent alert, he estimated, would be responsible for only a fraction of that.

Aviation analyst Chris Tarry said low-cost carriers may face a specific threat if the current ban on hand luggage were made permanent because operators were seeking to cut baggage handling costs by charging for and eventually phasing-out bags kept in holds. Ryanair, which currently charges up to $9.5 for hold baggage dismissed the threat, saying it had no plans to change its current practice. But the incident could increase tension between airlines and BAA over airport fees, regulated by the Civil Aviation Authority. BAA said that if increased security measures become permanent it will seek to have the extra costs included in the amount they are allowed to charge airlines. A spokesman confirmed this would mean an increase in charges.

A BA spokesman responded: "There is no reason for BAA to increase charges claiming this as a justification." —

© Guardian Newspapers Limited 2006

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