The Cost of Europe's Volcanic-Ash Travel Crisis

Updated: 10:15 a.m. E.T., April 20, 2010

After five days of empty airports and silent skies, European Union transport ministers held an emergency meeting (via video conference) on Monday, announcing that they would ease travel restrictions starting Tuesday morning. The initial cloud of volcanic ash that brought Europe's airlines to a standstill seems to be finally dissipating — and now its financial impact is becoming clearer. TUI Travel, Europe's biggest tour operator, said in a statement that fallout from Iceland's Eyjafjallajokull volcano has so far cost the firm $30 million. With about 100,000 of its customers still marooned overseas, the company added, that bill is rising by $9 million a day. European airports, many deserted since dust spewed out by the volcano turned the region into a no-fly zone last week, are down $183 million as a result of the eruption, industry group ACI Europe said on Sunday. The world's airlines, meanwhile, are together estimated to have lost more than that each day.

Barely clear of the turbulence wreaked by the global financial crisis, it's a rotten time to be in the travel business. "Airlines are still weak," Howard Wheeldon, senior strategist at brokers BGC Partners in London wrote in a note to clients on Monday. "This will have made them a lot weaker." But judging the eruption's impact on the European economy — itself knocked off course by the recent financial storm — is far trickier. "As each day goes, the situation will impact more on the wider business community and economy," Wheeldon wrote. Second-quarter growth from Europe to Asia, he said, could feel the effects "within days."

Plans by the U.K., Germany and others to begin reopening airspace on Tuesday have offered at least some, albeit temporary, relief. But the situation is far from over. A new ash cloud spreading south from the erupting volcano on Tuesday raised new concerns over the restoration of schedules. "This demonstrates the dynamic and rapidly changing conditions in which we are working," the National Air Traffic Services said in a statement. Scottish airspace is open, with the first international flight from Glasgow due to head for Reykjavik, Iceland, at noon BST (7 a.m. E.T.). Most of Scotland's airspace will remain available from 1300 to 1900 BST (0800-1400 E.T.), but there will be no flights from Glasgow after 1300 BST (0800 E.T.). No airports south of Newcastle — including all London airports — will open before 0100 BST (2000 E.T.) on Wednesday. Across Europe, the news was better with airports in central Europe and Scandinavia reopening, and most of southern Europe remaining clear. Eurocontrol, an air-traffic agency in Brussels, said it expects 55%-60% of flights over Europe to go ahead on Tuesday. And the first transatlantic commercial flight since April 15 left Paris' Charles de Gaulle Airport for JFK in New York City. "We were in the hotel having breakfast, and we heard an aircraft take off. Everybody got up and applauded," says Bob Basso, 81, of San Diego, who has been in a hotel near Charles de Gaulle since his flight on April 16 was canceled.

But while planes start to take off, Europe's economy won't avoid more turbulence. Trade in the region, for one thing, will have been stymied by the ash. More of the world's commerce may be carried by road, rail or sea than by air — in Britain, airfreight accounts for just 1% of the country's total trade volume — but "disruption is potentially a problem," says Jonathan Loynes, chief European economist at consultancy Capital Economics in London. Food and flower traders have plenty to fear: flight restrictions "may well impact southern Spain, which exports a large chunk of produce to northern Europe" at this time of year, says Peter Dixon, an economist at Commerzbank in London. (Kenyan growers — who were responsible for about one-third of Europe's imported flowers before their crops were grounded by the volcano — have been losing about $2 million a day.) European firms in the electronics and pharmaceutical industries, both of which rely heavily on "just in time" airfreight, have also had to seek out new supply routes.

With euro-zone economies expected to expand just 1% this year, according to an Ernst & Young forecast published on April 16, the Icelandic ash has proved a nuisance. But it needn't be a major setback. Deprived of fresh stock, many firms will simply lean on their existing inventories until regular supplies resume. "A four- or five-day [flight] ban won't cut off the supply of goods instantly," says Dixon. The fact that the crisis unfolded over a weekend, during which freight activity is limited, will have helped. Moreover, "the rule from these sorts of things is that their effect tends to be smaller than it seems at the time," says Loynes. "Where you do see an impact, it's often made up in the following periods." The damage to the U.K. economy wrought by heavy snow in January, for instance, was "by and large made up in February," Loynes says.

So while most firms will probably escape any long-term damage — many hotel, bus and boat companies taking bookings from stranded air passengers will even have enjoyed an unexpected boost — the world's airlines are braced for a much rougher ride. Already facing losses of $2.8 billion in 2010, the cancellation of more than 60,000 flights in recent days could hardly have come at a worse time. British Airways, still reeling from a costly strike by cabin crew last month, demanded on Monday that U.K. and E.U. governments pay it compensation. Giovanni Bisignani, director general of the International Air Transport Association, slammed the handling of flight restrictions as a "European mess." Having already driven more than 300 miles on Sunday from his office in Switzerland to press the French government in Paris to resume flights, Bisignani began the 600-mile road trip to Berlin on Monday to do the same with German officials. As planes once again take to the skies over Europe, the region's chauffeurs can finally take a much-needed nap.

— With reporting by Vivienne Walt / Paris