As the Airports Struggle to Adjust

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Hundreds of canceled flights. Huge lines at airports. Ferocious new baggage restrictions. Long delays. Traveling by air during the peak August holiday season is always an ordeal, but this year, it's far more strenuous than usual. Almost a week after the foiling of an alleged terrorist plot to blow up planes flying across the Atlantic, international air traffic remains snarled, especially at British airports, including Heathrow, the world's busiest international hub. Thousands of passengers — and their bags — have been stranded there, and the airlines and the company that runs Heathrow are now engaged in a nasty dispute over who should foot the bill.

Amid all the turbulence, however, what's notable is that people are still flying — and a large majority will continue to do so. That's a big contrast to 2001, in the aftermath of the Sept. 11 terrorist attacks, when air traffic collapsed, pushing several of the big U.S. carriers into, or close to, bankruptcy and causing severe financial troubles for almost all major airlines around the globe. This time, there are grumbles aplenty, but no mass-scale defections. "Passengers are getting more used to the idea of terrorism as an ongoing threat," says Philip Baggaley, airline analyst for Standard & Poor's in New York — which did not change its ratings on any U.S. airlines after the plot disclosure. He expects passenger traffic to slow after the holiday season, but says it will be hard to tell how much of that is due to security concerns, and how much to the weakening U.S. economy. And, unless the Bush Administration adds new security-related fees onto ticket prices, he reckons the impact of the latest scare for airlines "will be relatively limited."

That opinion, shared by other analysts and airline industry officials, is confirmed by an informal survey by Germany's Deutsche Bank following the foiled plot. It found that only 11% of passengers planned to change their near-term travel plans. The tough new baggage restrictions, in which nearly all carry-on luggage was initially banned, could have an impact on future travel, the survey found, but since then the rules have already been eased slightly to allow some cabin baggage. The upshot, according to Deutsche Bank analyst Chris Reid: "Current travel volumes should not be challenged." The one sector that might be affected for a while is the burgeoning low-cost carriers in Europe, such as Ryanair and easyJet, which have soared to prominence by tapping into demand for cheap weekend breaks for passengers who frequently don't want to check luggage.

That doesn't mean there aren't serious strains. The biggest at the moment is on airports, particularly the labor-intensive and often inefficient systems in place for handling baggage. Security worldwide was massively increased following the foiled plot. Liquids and gels have been banned from hand luggage on flights in the U.S. and elsewhere. And passengers flying between the U.K. and the U.S. were for several days all searched by hand and barred from bringing anything on board with them other than a select few items in a clear plastic bag. The British Home Secretary, John Reid, urged other European countries at a meeting in London Wednesday to work together to coordinate tighter security. "It's very important that the measures that are taken in one country are reflected in other countries because we want equal security for all our countries," Reid said.

Some of the initial draconian restrictions have now been relaxed, and small carry-on bags are once again being allowed on transatlantic flights. But the new rules permit only carry-on bags that are about half the size of those permitted before last week: no bigger than 45 cm. by 35 cm. by 16 cm. (17.5 in. by 13.5 in. by 6 in.),about the size of a computer bag. In Britain, government officials are considering whether to make this rule permanent.

That poses a problem for business travelers on short trips who prefer not to check bags. Standard & Poor's Baggaley talks about a "hassle factor" and says the tougher security "is likely to divert at least a small amount of business travelers." Any such defections would hurt airlines just as they have been returning to better financial shape, including U.S. carriers such as Delta, which is currently in bankruptcy but reported stronger operating margins in the second quarter. Airports are facing potentially even tougher problems. Baggage handling systems are nearly overloaded in many airports, as the number of checked bags has increased by up to 40%. Heathrow in particular has become chaotic. British Airways says about 20,000 bags have been lost in the past few days.

British Airways and other British carriers, including Ryanair and Virgin Atlantic, are blaming some of the problems, including more than a thousand canceled flights, on BAA, the airport operator, which they claim wasn't up to the job of handling the big increase in security. "Since 9/11, everyone in the industry has known there might be times when extra security measures needed to be put in place," British Airway chief executive William Walsh said this week. "Yet when the moment struck, BAA had no plan ready to keep Heathrow functioning properly. The queues for security have wound all round the terminals like a bad dream at Disneyland." The airlines are currently considering whether to seek compensation from BAA or the British government. Analysts estimate the financial damage at around $100 million per day. BAA says it has been dealing with the crisis as best it can.