Airline Industry Starts Counting The Cost Of Volcano Ash
April 16 2010 - 11:45AM
Dow Jones News
The airline industry Friday began counting the cost of the huge
volcanic ash cloud that had closed air space across most of Europe
and grounded planes across the world.
The Air Transport Association, or IATA, which represents some
230 airlines and 93% of scheduled international global air traffic,
said that at current levels of disruption, its initial and
conservative estimate of the financial impact on airlines is in
excess of $200 million a day in lost revenue.
However, it said airlines would be hurt further as they will
incur added costs for re-routing of aircraft, care for stranded
passengers and aircraft at various ports.
A volcano under Iceland's Eyjafjallajokull glacier erupted
Wednesday for the second time in a month, spewing clouds up to
35,000 feet into the air. Aircraft travel at altitudes up to 35,000
feet. Volcanic ash is a significant safety threat to aircraft, and
the cloud has spread across one of the busiest travel and trade
routes in the world, forcing the closure of many of the region's
key gateways during Thursday and Friday, from Norway south to
Switzerland. Particles reduce visibility, damage aircraft
windshields and can cause engines to shut down.
The disruption was set to continue into the weekend and weather
experts were unable to forecast when the problem would end.
European airlines were hard hit, with British Airways PLC
(BAY.LN) grounding its entire fleet, and other airlines only able
to operate out of airports in southern Europe. Airlines from other
regions of the world were also hit as they were forced to cancel
flights to the affected area.
The expected losses for the industry come as airlines across the
world are only just starting to recover from the credit crisis and
economic downturn. Many airlines had gone bust and other had seen
profits slide or turn to huge losses as passenger numbers slid
shraply and cargo volumes fell.
Prior to the eruption, IATA had forecast that the airline
industry would incur a $2.8 billion loss in 2010, down from the
$9.4 billion loss the industry suffered in 2009. It had trimmed its
forecast for this year from $5.6 billion previously as emerging
markets of Asia-Pacific and Latin America experienced a recovery in
passenger numbers and cargo volumes.
Many airlines weren't prepared to say how much the disruption
was costing them Friday.
However, Finnish airline Finnair (FIA1S.HE) said it had been
forced to cancel 435 flights, affecting about 54,000 passengers,
which was costing it about EUR2 million a day in lost revenue.
Helsinki airport was set to be closed until at least Sunday at 1200
GMT.
Belgian carrier Brussels Airlines, meanwhile, expects the air
travel disruption to cost it several hundreds of thousands of
euros.
The cost to larger airlines like BA, Ryanair Holdings PLC
(RYA.DB) or Deutsche Lufthansa AG (LHA.XE) is expected to be
several millions of euros so far.
BA legal documents related to the recent strike held by the
employees' union show that the company estimates the average cost
of taking a single long-haul aircraft out of service for a day is
about GBP174,000, while the cost of grounding the entire long-haul
fleet for a day is roughly GBP13 million.
A BA spokeswoman said the airline doesn't yet have an official
estimate on how much money it is losing from the closure of the
airports. The airline has previously forecast a pretax loss of
about GBP600 million for the fiscal year ended March 31, 2010.
-By Steve McGrath, Dow Jones Newswires; 44-20-7842-9284;
steve.mcgrath@dowjones.com
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