Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Ash costing airlines $200-million a day in lost revenue Add to ...

Global carriers are forgoing an estimated $200-million (U.S.) in daily revenue after Iceland's volcanic ash forced the grounding of planes, racking up losses that hurt a fragile industry barely recovering from the recession.

The International Air Transport Association (IATA) said Friday that it has set up a crisis centre in Montreal to help European air navigation authorities deal with widespread flight cancellations triggered by the “extraordinary situation in Europe as a result of volcanic ash from Iceland.”

There has been a domino effect on airlines around the planet since the volcano's eruption prompted the shutdown of an array of European airports on Thursday, with planes stuck on the tarmac because the ash poses a catastrophic threat to jet engines.

By some industry estimates, the amount of forgone revenue could top $1-billion, given that it might take nearly a week just to clear the backlog of hundreds of thousands of passengers waiting to fly to or from Europe.

“At current levels of disruption, IATA's initial and conservative estimate of the financial impact on airlines is in excess of $200-million per day in lost revenues,” said IATA, whose member carriers account for 93 per cent of scheduled international air traffic. “In addition to lost revenues, airlines will incur added costs for rerouting of aircraft,” burning up pricey jet fuel on longer flight paths to avoid the huge cloud of ash.

In some cases, carriers are also absorbing the hotel expenses of connecting passengers left stranded, depending on individual ticketing rules. For instance, Air France said it had booked more than 2,000 hotel rooms Friday for “passengers who have already arrived at Paris Charles de Gaulle and who have a connecting flight.”

Air Canada said Friday that it had to cancel flights for a second consecutive day.

“A number of European airports have closed and airspace has been restricted until further notice,” Air Canada said in a statement, noting that airports affected include London Heathrow, Paris Charles de Gaulle, Frankfurt, Munich, Zurich and Geneva.

Amid plans to deploy larger jets and adding flights where possible, Air Canada cautioned that “it may take several days for travel to resume.”

Airlines can't afford to have a large fleet of spare planes on hand because of the high costs involved in having dormant assets, so it isn't a simple matter to reschedule passengers.

Global carriers are hoping to recoup some of their losses later this year, counting on customers whose trips have been cancelled to rebook rather than request outright refunds.

But many airlines won't be able to reap the rewards of last-minute travellers over the next week because most flights are fully booked in economy class as a result of the need to accommodate stranded travellers, said IATA spokesman Steve Lott.

Consumers might also shy away from making new European bookings in the short term because of the uncertainty over volcanic activity.

Raymond James Ltd. analyst Ben Cherniavsky said the airline industry had been on the rebound prior to “Ash Thursday,” and he figures the sector will regain its footing after the “ash-spewing volcano” stops wreaking havoc on air travel.

A strong loonie bodes well for Air Canada and WestJet Airlines Ltd., which both have stepped up their service into the United States, he said.

Industry experts say the Canadian dollar's appreciation against the euro should bolster outbound trips to Europe this summer, but Canada's tourism sector is bracing for a tough summer with the prospect of fewer foreign visitors.

Follow on Twitter: @brentcjang

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories