GRAPHIC-Flight to safety lifts Zurich Airport shares to record highs

* European airport stocks: http://bit.ly/2aFaY7v

By Sudip Kar-Gupta

LONDON, Aug 10 (Reuters) - While the European travel sector has had a tough time this year due to deadly attacks and stubbornly weak economic growth, shares of a handful of small airport operators in the region have emerged as bright spots for investors.

Shares (Berlin: DI6.BE - news) in Switzerland's Flughafen Zurich, Austria's Flughafen Wien (LSE: 0NM6.L - news) and Spain's Aena (Dusseldorf: 26876733.DU - news) are hovering near record highs, while shares of several major European airlines nurse heavy losses for the year.

The STOXX Europe 600 Travel & Leisure index is down around 15 percent so far in 2016, partly reflecting the impact of militant attacks this year in Brussels, Nice (Milan: NICE.MI - news) and Munich.

Shares of major airports in Germany and France have taken a hit too. Fraport (LSE: 0O1R.L - news) last week lowered its forecasts for passenger numbers.

But a combination of stable dividends, service improvements and the perception of relatively safe locations have helped shares in small airport operators in Switzerland and Austria buck the trend.

Eleanor Taylor Jolidon, head of Swiss equities at Union Bancaire Privee, said one reason why Zurich's airport operator had fared better than its French and German rivals was the perception of Switzerland as a relatively safe destination in the current, troubled political climate.

"Remember that Switzerland is not a member of the European Union, let alone the euro zone, so has not been beset by some of the headwinds of that economic area," said Jolidon, whose portfolio includes Flughafen Zurich shares.

"Switzerland's neutrality and well spread prosperity may mean that some travellers perceive transfer in Switzerland as safer than in a country currently involved in a conflict or facing internal socio-economic turmoil," she added.

Others point to service improvements in recent years as a particular draw for investors looking for growth in what is often considered a stable, though boring, sector.

"Their new extended contracts for retail and property space are providing long-term visibility, said Mirabaud Asset Management's Paul Schibli.

European airports have made moves to redesign terminals and offer new services to pull more passengers into their stores, in the face of online competition and militant attacks that have kept away some big-spending Asian travellers.

"As long as traffic trends remain positive, these improvements mean tenants are willing to pay more, which leads to rising retail margin," said Schibli, whose portfolio includes Flughafen Zurich shares.

Add a stable dividend yield of 3.5 percent on top of that makes the investments even more attractive.

Vienna Airport, which plans to expand areas devoted to shopping and restaurants in one of its terminals by 50 percent, reported stable passenger numbers for June compared with a year ago, while Zurich Airport posted a slight rise in passenger numbers for that month.

(Editing by Hugh Lawson)