For Airlines and Hotels, a Familiar Cycle

After an early clubbing, analysts see the shares bouncing back.
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Shares of U.S. airlines and hoteliers slumped Thursday, more than the broader market, in the wake of deadly explosions that rocked rush-hour London.

But while the blasts reignited fears about terrorism and might affect travel bookings in the next couple of days, analysts said the explosions shouldn't have a significant impact on the two sectors.

"Although it is reasonable to expect weakness in U.S. travel-related stocks today and potentially over the next several weeks, we believe today's events in London are unlikely to result in any major short- or long-term impact on the U.S. travel industry," writes Marc Falcone, lodging and gaming analyst at Deutsche Bank Securities. "In fact, today's events may result in an increase in domestic and inbound international travel."

The Amex Airline Index was down 2.1% after shedding as much as 3% of its value Thursday morning. The Dow Jones U.S. Hotels Index was off 1.1% after falling 1.6%. Those losses outpaced the

S&P 500

, which was down by roughly 0.4% at midday.

The London explosions -- three on the city's subway system and one on a bus -- bear more than a passing resemblance to the March 11, 2004, train bombings that killed 191 people in Madrid. The earlier attacks are believed to have been the work of an Islamist network based in Spain, and the

BBC

reported Thursday that an Islamist Web site has posted a statement taking credit for the London blasts.

But as horrific as the Madrid attacks were, both airline and hotel stocks managed to rebound from selling in their aftermath. The Amex Airline Index lost as much as 11% in the days after the Madrid bombings but recovered those losses by the beginning of April. The Dow Jones U.S. Hotels Index also slumped but managed a similar recovery.

Thursday's London bombings appear to have been less deadly than the Madrid attacks; the

BBC

was reporting at least 30 dead.

"I would expect that the airline stocks would be weak for a couple of days," says Jim Corridore, airline equity analyst at Standard & Poor's. "But they may not be as weak as they were after the Madrid bombings, because as awful as the London attacks are, they don't appear to be as bad as the Madrid bombings."

Corridore said the Madrid bombings had very little impact on international travel. "Certainly, bookings will be down today, but they should smooth out over the next couple of weeks," he says.

Demand for trans-Atlantic travel is robust right now, helping U.S. network carriers. International routes tend to be more lucrative than domestic ones, as there is less competition on them.

Northwest Airlines

(NWAC)

says traffic on its trans-Atlantic flights jumped 14.1% in June from a year before, helping it fill an average of 92.4% of its seats on those flights.

Shares of big U.S. hotel companies also should bounce back, say Wall Street analysts.

Deutsche's Falcone expects the trends of increasing hotel room rates and low supply growth of new hotel rooms will continue; he's encouraging investors to take advantage of Thursday's weakness to load up on hotel stocks ahead of an expected strong second-quarter earnings season.

Some North American companies own or manage hotels in London, where bookings may decline for a time. But Harry Curtis, a J.P. Morgan analyst, writes that "for the most part," these companies derive little of their operating earnings from the city.

Curtis notes that

Starwood Hotels & Resorts

(HOT)

owns one hotel in London and one at Heathrow Airport. It also manages three properties in the city. The analyst estimates that the company's total earnings before interest, taxes, depreciation and amortization are less than $25 million, or less than 2% of the company's forward 12-month EBITDA.

Of course, the current outlook might change if another terrorist attack follows the London explosions, or if terrorists attack or hijack an airliner.