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19 Apr, 2010 16:46

Icelandic eruption has price tag for airlines

The eruption of Iceland’s Eyjafjallajoekull volcano has a mounting economic price tag with airlines bearing the brunt and thousands of passengers stranded.

The International Air Transport Association (IATA) estimates its members are losing up to $200 million per day, with estimates for the longer term impact ranging to well over a billion dollars.

Kenyan flower exporters – dependent on swift access to key markets in the EU – have been hit hard, with 5000 employees from the industry laid off, and tour operators across the continent and further afield are facing the prospect of postponements and cancellations – not to mention the need to service thousands of customers who will be less than perfectly happy, even where they recognise that there isn't that much that can be done about volcanic eruptions.  

The upside is for rail, road and sea transport, with major rail networks experiencing a boom in demand, bus companies booked out, and car rental and taxi firms also benefitting. Elsewhere there are tourists staying extra days in hotels – if they are lucky enough to be able to book them – and spending dwindling posts easter budgets in restaurants.  Although some time sensitive luxury foods will be affected earlier, industry generally relies on shipping and wheeled transport.

Airline industry bodies are already comparing it to the September 11 air attacks on New York, and Aleksey Sinitsky, editor-in-chief of Airtransport Observer says the costs for airlines can be expected to mount further.

“A plane makes money only if it flies. If it stays on the ground it brings a lot of different losses, leasing payments are one of the most significant ones. Plus airlines spend a lot on looking after passengers when they are delayed.”

But there's more than the short term losses to consider. If ash gets into the jet engines, this not only causes a safety risk, but involves a longer term maintenance requirement and operational expenses, according to Andrey Rozhkov, analyst at IFC Metropol. .

“After flights in the current conditions the planes will have to be more closely checked. Expenses for the operators will grow by between 5-7%.”

Over the weekend several major airlines safely tested the skies with passenger free flights. They are keen to get back in the air and stop the financial hemorrhage.  But the industry will remain under a cloud long after the ash has cleared, with airlines beginning to complain about the extent of the air space closure – and impact on customers – and insurance companies waiting for the claims to come in.