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The Honolulu Advertiser
Posted on: Tuesday, April 20, 2010

Ash cloud costs airlines more than $1B

Associated Press

Hawaii news photo - The Honolulu Advertiser

Austrian authorities have reopened the country's airspace days after ash from a volcano in Iceland forced its closure, but many European airports are still shut down.

HANS PUNZ | Associated Press

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PARIS Airline losses from the volcanic ash cloud climbed above $1 billion yesterday, and the industry demanded compensation from the European Union as officials agreed to let flights resume on a limited basis.

Airlines are losing as much as $300 million per day, with European companies like British Airways suffering the most. An umbrella group for the airline industry criticized European leaders' handling of the disruption, which has grounded thousands of flights to and from Europe for the past five days.

"It's embarrassing, and a European mess," said Giovanni Bisignani, chief executive of the International Air Transport Association. The group complained that it saw "no leadership" from government officials.

"It took five days to organize a conference call with the ministers of transport, and we are losing $200 million per day (and) 750,000 passengers are stranded all over. Does it make sense?" Bisignani said.

Air transport officials said losses could run as high as $300 million a day, although most analysts expect the effect on U.S. airlines will be limited.

The disruptions caused by the ash cloud happened just as airlines were seeing demand pick up, particularly in the more lucrative business travel segment. Last year, the recession suppressed both leisure and business travel, causing the industry to lose an estimated $9.4 billion, according to the IATA.

British Airways said airlines have asked the EU for financial compensation for the closure of airspace, which began Wednesday. BA's London hub was among the first to shut down.

"This is an unprecedented situation that is having a huge impact on customers and airlines alike," said BA Chief Executive Willie Walsh. "We continue to offer as much support as we can to our customers. However, these are extraordinary circumstances that are beyond all airlines' control."

The airline industry has racked up $50 billion in losses over the past decade. The Sept. 11 attacks, epidemics of SARS and bird flu, increased security requirements and the economic crisis have all been cited as causes for decreased revenues.

After the 2001 terrorist attacks, Congress gave U.S. airlines $15 billion in aid and loan guarantees, which may provide an example for European governments.

Pierre-Henri Gourgeon, the No. 2 executive at Air France-KLM, said his company is losing $47 million a day even as test flights indicated the routes were safe.

"On all these flights, there hasn't been any reported problem upon arrival," Gourgeon said. "There isn't a real risk. ... The precautions that have been taken are certainly too restrictive."

European Union transport ministers reached a deal yesterday to divide northern European skies into three areas: a "no-fly" zone immediately over the ash cloud; a caution zone "with some contamination" where planes can fly subject to checks for engine damage; and an open-skies zone.

Starting this morning, "we should see progressively more planes start to fly," EU Transport Commissioner Siim Kallas said.

European civil aviation authorities held a conference call yesterday about potentially reopening airspace, and transport ministers of all 27 European Union members were conferring by phone and videoconference.

Dominique Bussereau, France's transport minister, told reporters yesterday that since Saturday, he had been urging Spain, which holds the EU presidency, to call the ministerial meeting immediately but Madrid declined.

"Naturally, it would have been better if it had taken place Sunday or Saturday," Bussereau said.

The prospect of continued losses and flight cancelations dragged down shares of many airlines, although they rallied before European closing times. German carrier Deutsche Lufthansa AG fell 2.6 percent in Frankfurt; Air France-KLM SA dropped 2.8 percent in Paris and British Airways slipped 1.4 percent in London.

Johannes Braun, an analyst at Commerzbank in Frankfurt, said for individual airlines, "the cost impact is roughly comparable to a strike."

But Jesup & Lamont aviation analyst Helane Becker in the U.S. said it was possible that European carriers would file for bankruptcy protection as a result of business lost to the ash cloud. She said British Airways was among those in the most dire financial circumstances.

Becker estimated that the impact for U.S. airlines will be similar to those incurred from the February winter storms that cost Delta the world's largest carrier about $65 million in revenue. United Airlines lost about $40 million in revenue.