Airline shares were punished Monday after an American Airlines jet crashed near New York's John F. Kennedy International Airport. The news is yet another devastating blow to the industry, which had hoped a brisk holiday season might begin to heal the wounds of Sept. 11.

"For the airlines, which have worked so hard to restore trust and confidence, this is absolutely the last thing they needed," noted Charles White, portfolio manager at Avatar Investors.

American Airlines' parent,

AMR

(AMR)

, which has now lost three commercial jetliners in two months, saw its shares slide 9% to $16.49 after earlier touching their lowest level since 1987. Meanwhile, United Airlines' parent,

UAL

(UAL) - Get Report

, which lost two commercial airliners on Sept. 11, traded down 5% to $10.33. United said it had halted some of its own flights but resumed them "after talking with all the relevant agencies." All airports in the New York area were closed Monday.

AMR refused to speculate on the cause of the crash, and initial indications from the Federal Aviation Administration and FBI were that it was not terrorist-related. Still, the specter of more deliberate violence against U.S. targets weighed on already frayed nerves.

"People are hoping that it was a mechanical failure, although it's a sad day in America when you have to hope for that," said Helane Becker, an airline analyst at Buckingham Research.

"If it was not a mechanical failure, it is highly likely that the industry will be forced to consolidate," she said, noting that bookings will "obviously turn down" even further.

Susan Donofrio, airline analyst at Deutsche Banc Alex. Brown, said Washington may be more supportive of consolidation in the industry after Monday's events, but she noted that some smaller airlines could still be pushed out of business.

America West

( AWA) is the weakest link in the group, she said, "with $265 million of cash expected by year-end and a daily cash-burn rate of $2 million."

"Their best hope, should demand not pick up, is to receive a loan guarantee from the government. There appears to be sentiment in Washington, however, to not bail out every airline."

As for United, it will continue to "stumble along," but with $2.7 billion in cash, it is not at risk of going bankrupt, said Donofrio, who likes the more financially sound airlines, including

Atlantic Coast

( ACAI),

SkyWest

(SKYW) - Get Report

,

Southwest

(LUV) - Get Report

,

Alaska Airlines

(ALK) - Get Report

and

Delta

(DAL) - Get Report

.

Airlines have been hemorrhaging cash this year. In fact, Merrill Lynch analyst Michael Linenberg is forecasting a $6.5 billion loss for 2001 and a $3.5 billion loss for 2002.

United Airlines CEO James Goodwin said in October that unless the "bleeding" stops, the company would "perish sometime next year." All of the major airlines have cut capacity and announced job cuts during the past two months and Congress has approved some $15 billion in relief for the industry.

"If you look back to the Persian Gulf War, it took two years to get back to 1989 traffic levels, so we believe it will take about the same amount of time for the industry to get back to the traffic levels of 2000," noted Buckingham's Becker.

For October, the major airlines reported a year-over-year traffic decline of 26%.

"Since then, there was a slow yet steady rebound in traffic performance as we headed into the month of November. Today's tragic events may reverse this trend as passengers may decide to stay home for the holidays," Donofrio said.

As a result of the crash of American Airlines Flight 587, analysts say changes to airport security are now likely to be implemented in a more timely manner. The House version of the aviation security bill previously proposed the screening of all checked bags by "no later than Dec. 31, 2003."

As for excess insurance costs, they will probably be paid for by the government over the near term, analysts say.

Among other airline stocks, Delta shed 10% to $23.27 and

Continental

(CAL) - Get Report

fell 9% to $16. The Amex Airline index slid almost 6% to 65.22 and is down almost 44% since Sept. 10. The Dow Jones Transportation Average, which fell 2% to 2272 on Monday, was mainly weighed down by airline stocks, with other transport issues trading flat to slightly lower.

CSX

(CSX) - Get Report

was flat at $35.53, and

Union Pacific

(UNP) - Get Report

fell 0.59% to $53.50.

Meanwhile, hotel stocks backpedaled amid worries about a slowdown in travel.

Marriott International

(MAR) - Get Report

fell 4% to $32.50, while

Four Seasons Hotels

( FS) slumped 8% to $33.91. Cruise-ship giant

Royal Caribbean

(RCL) - Get Report

slid 7% to $11.91.

"If this was terrorism, then its implications go beyond the airline industry," Avatar's White noted.