Volcano Crisis Cost Airlines $1.7 Billion

The Icelandic volcano crisis cost airlines more than $1.7 billion in lost revenue through Tuesday—six days after the initial eruption, the International Air Transport Association (IATA) estimates. For a three-day period (April 17-19), when disruptions were greatest, lost revenues reached $400 million per day. Governments should help carriers recover the cost of this disruption, IATA said, opening the door to some form of aid.

“Lost revenues now total more than $1.7 billion for airlines alone” said Giovanni Bisignani, IATA’s Director General and CEO. “At the worst, the crisis impacted 29 percent 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.”

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 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,” said Bisignani. “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. 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.”

But the larger role is for governments. Bisignani made three 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: 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 U.S. 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,” said Bisignani. “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.”

On Monday, the European Commission (EU) announced revised measures for handling airspace closures, following widespread criticism of their methodology.

“Airspace was being closed based on theoretical models not on facts,” said Bisignani. “Test flights by our members showed that the models were wrong. Our top priority is safety. Without compromising on safety, Europe needed to find a way to make decisions based on facts and risk assessment, not theories. The decision to categorize airspace based on risk was a step in the right direction. Unfortunately, not all states are applying this uniformly. It is an embarrassing situation for Europe, which after decades of discussion still does not have an effective Single European Sky. The chaos and economic losses of the last week are a clarion call to Europe’s political leaders that a Single European Sky is critical and urgent."

Visit www.IATA.org.


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