Security pressure seen on passenger jet cargo

Security pressure seen on passenger jet cargo

Too early to judge cost impact, industry says.

November 2, 2010 10:22 by Reuters

Airlines could face pressure to put less cargo on passenger planes or improve blast protection after one of the parcels in the Yemen bomb plot was found to have flown in a passenger jet, analysts said on Monday.

Market reaction to Friday’s discovery of bombs hidden in two U.S.-bound parcels showed some signs of ‘scare fatigue’ compared with the jitters caused by a failed plot to blow up a passenger plane over Detroit in 2009 or April’s volcanic ash crisis.

But concerns over a possible weak link in air security grew after Qatar Airways confirmed on Saturday that it had carried an explosive package that was later seized in Dubai. The parcel had been flown from Yemen with a stopover in the Qatari capital Doha.

“This certainly reinforces the desire to get cargo, including packages, off passenger airplanes,” said George Hamlin, president of Hamlin Transportation Consulting in Fairfax, Virginia.

“That’s not a piece of economic good news for the passenger carriers, particularly the international ones whose making of a profit very often depends on carrying cargo in the belly on long haul international flights.

“Cargo on domestic flights in the U.S. is a fraction of what it used to be because FedEx and UPS have taken that market over, but it’s still very important in the economics of the international passenger business.

According to airines association IATA, about 35 percent of the value of world trade is carried by air.

Airbus says approximately 60 percent of global freight tonne kilometres (the amount of freight times the distance flown) are carried in dedicated freighter aircraft.

Many airlines said on Monday they were already implementing tough security standards or stepping them up.

‘SECURITY WORKING’

Shares in United Parcel Service and FedEx both rose with other stocks in early New York trading despite the discovery of the two parcel bombs in their networks.

“The market hasn’t reacted to this latest security scare because this isn’t a new threat from a new group. It is an ongoing threat from the same enemy, which has worked out how to do things differently,” said Howard Wheeldon, Senior Strategist at BGC Partners in London.

Other airline stocks were mixed with narrow changes.

“We think the interception of these packages shows that security is working, and think new heightened security measures will ease public fear and improve chances at further detection,” said Jim Corridore at Standard & Poor’s Equity Research.

Companies like UPS, FedEx and European competitors like TNT use a combination of their own planes and other airline networks or else road-trucking to deliver parcels door-to-door.

During the global economic crisis companies around the world bought fewer goods for delivery by air, hurting airline profits.

However, in recent months companies had to restock inventory in a rush when demand for goods and services picked up again after the economic crisis. British Airways’ mid-year cargo sales, which are 8 percent of its total, rose 39 percent.

Cargo carried in passenger planes must be scanned but governments have for years debated whether to expand this to all-cargo planes. A 2007 Congressional report said the technology did not exist to do this affordably for all freight.

Officials have focused on a mixture of x-ray scanning and risk assessments based on evaluating shippers.

Officials have also considered using tougher materials like kevlar to replace the aluminium containers used to load cargo. But the Congressional report found increased costs may prevent passenger airlines from competing with all-cargo carriers.

“It’s not clear at this stage whether (governments) will require cargo and freight operators to acquire and use a lot of new equipment,” said Rob Stallard of RBC Capital Markets.

“With that in mind, I don’t expect that there will be a major impact on specific U.S.S stock prices at this stage, and certainly not something that will buck the underlying trends.”

Still, expectations of demand for new security equipment lifted shares in Britain’s Smiths Industries and France’s Safran , which make advanced explosives scanners.

Dutch logistics group TNT played down the costs. “I don’t expect much for the short term but we will have to see what measures get imposed longer term,” Finance Director Bernard Bot told Reuters Insider.

(Additional reporting by Lynn Adler, Greg Roumeliotis, Rhys Jones, Maria Sheahan, Donny Kwok, Park Ju-min, Karen Jacobs; Editing by David Cowell).