Airlines losing $200m a day
Saturday, 17 April 2010
LONDON: The volcanic ash cloud making much of northern Europe a no-fly zone has hurt the prices of airline stocks, paralysed air cargo delivery and disrupted business and leisure travel. But analysts expect the overall economic impact to be minor.
HOW LONG WILL THE DISRUPTION LAST?
This depends on how long the volcano under Iceland’s Eyjafjallajokull glacier keeps erupting, whether it continues spewing ash, and whether winds carry the ash towards Europe. The volcano’s previous eruption lasted over a year, but changes in wind and weather patterns could disperse the ash; many analysts think the cloud will not linger over Europe for more than a few days at a time.
If the volcano does continue to erupt, occasional disruption will be possible over six months or more, experts say. Much will depend on whether Eyjafjallajokull triggers a new eruption from the nearby and larger Katla volcano, which has happened in the past. That could magnify the impact. Countries are proving able to resume flights quite quickly when local conditions improve. Ireland has reopened its airspace. But the cloud continues to drift south, affecting more countries.
impact on airlines
Around 17,000 flights were expected to be cancelled, with airspace closed across much of Europe. Shares in Lufthansa, British Airways, Air Berlin, Air France-KLM, Iberia, Ryanair and SAS fell between 2 and 4 percent. Ryanair said it would cancel flights to and from northern European countries until 1200 GMT on Monday. The disruption is costing airlines more than $200m a day, air industry body IATA estimated. Fraport AG, which operates Germany’s main airport in Frankfurt, says its initial estimate was for the ash to cost it between ¤2.5m and ¤3m per day. Iceland’s location means the eruption could prompt wider disruption to international flights.
OVERALL ECONOMIC, MARKET IMPACT
Unless the cloud disrupts flights continuously for weeks, threatening factories’ supply chains, economists do not think it will significantly slow Europe’s shaky recovery from recession or affect second-quarter gross domestic product figures. Business meetings have been cancelled across Europe as a result of staff being unable to attend. If extended disruption to air travel hits supply chains, factories will be able to reduce the damage by using sea, river or road cargo, or changing procurement plans.
Eurostar, which runs trains between London and the European continent, said trains were operating at full capacity and it might lay on additional trains if necessary. London taxi firm Addison Lee said it had taken requests for journeys to Paris, Milan, Zurich and Salzburg in Austria.
Grounded air cargo flights have halted delivery of items such as microchips, flowers and mail. Europe’s largest mail and express delivery company Deutsche Post said it was switching to road transport where possible. Switching to sea cargo might be an option for longer deliveries, although not for perishables such as flowers, but shipping analysts said it would likely take at least several more days before firms started rebooking by sea. Pharmaceutical supplies in particular are often transported by air, but experts said there were sufficient stocks so there should be no serious shortages for now.
JBC Energy’s model for European jet fuel consumption puts daily consumption at 1.17 million barrels a day, so assuming an estimated 80 percent of Europe’s airports are shut for 48 hours, the disruption will cut 1.87 million barrels of demand. European jet fuel price spot differentials to the ICE-traded gas oil contract fell to $48 a tonne on Friday from $50.50 on Thursday.
Airlines are expected to have little recourse to insurance firms. Most airlines are neither insured against cancellations nor business disruption at airports. Insurer Munich Re said it could offer cancellation insurance to airlines if necessary.