Volcanic Ash Crisis Cost Airlines $1.7 Billion

IATA today estimated that the Icelandic volcano crisis cost airlines more than $1.7 billion in lost revenue through Tuesday (20 April 2010)- six days after the initial eruption. For a three-day period (17-19 April), when disruptions were greatest, lost revenues are estimated to have reached $400 million per day.

“Lost revenues now total more than $1.7 billion for airlines alone. At the worst, the crisis impacted 29% of global aviation and affected 1.2 million passengers a day. The scale of the crisis eclipsed 9/11 when US airspace was closed for three days,” said Giovanni Bisignani, IATA’s Director General and CEO.

IATA noted there are some cost savings related to the flight groundings. For example, the fuel bill is $110 million a day less compared to normal. But airlines face added costs including from passenger care.

 “For an industry that lost $9.4 billion last year and was forecast to lose a further $2.8 billion in 2010, this crisis is devastating. It is hitting hardest where the carriers are in the most difficult financial situation. Europe’s carriers were already expected to lose $2.2 billion this year—the largest in the industry,” said Bisignani.

Mitigating the Financial Impact

“As we are counting the costs of the crisis we must also look for ways to mitigate the impact. Some of our airport partners are setting industry best practice. London Heathrow and Dubai are waiving parking fees and not charging for repositioning flights. Others airports must follow,” said Bisignani.

But the larger role is for governments Bisignani said, making four specific requests for regulatory relief:

Relax Airport Slot Rules: IATA urged that rules on take-off and landing slot allocation (use it or lose it) be relaxed to reflect the extra-ordinary nature of the crisis.

Lift Restrictions on Night Flights: IATA urged governments to relax bans on night flights so carriers can take every opportunity to get stranded passengers back home as soon as possible.

Address Unfair Passenger Care Regulations: “This crisis is an act of god - completely beyond the control of airlines. Insurers certainly see it this way. But Europe’s passenger rights regulations take no consideration of this. These regulations provide no relief for extraordinary situations and still hold airlines responsible to pay for hotels, meals and telephones. The regulations were never meant for such extra-ordinary situations. It is urgent that the European Commission finds a way to ease this unfair burden,” said Bisignani.

Bisignani also urged governments to examine ways for governments to compensate airlines for lost revenues. Following 9/11, the US government provided $5 billion to compensate airlines for the costs of grounding the fleet for three days. The European Commission also allowed European states to provide similar assistance.

“I am the first one to say that this industry does not want or need bailouts. But this crisis is not the result of running our business badly. It is an extra-ordinary situation exaggerated with a poor decision-making process by national governments. The airlines could not do business normally. Governments should help carriers recover the cost of this disruption,” said Bisignani.

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