Europe’s Travel Firms Count Costs of Volcanic Ash Disruptions

By Rhys Jones and | May 11, 2010

Europe’s travel industry is counting the cost of air traffic disruption caused by a volcanic ash cloud which forced thousands of flights to be cancelled and is braced for more stoppages this month.

British travel company TUI Travel and low-cost airline easyJet said on Tuesday the disruption would eat into full-year profits but they hoped to recoup some losses through compensation claims lodged with national governments and the European Union.

Europe has been dogged for weeks by repeated shutdowns of air traffic since an erupting volcano under the Eyjafjallajokull glacier in Iceland started spewing ash in April.

TUI Travel, Europe’s biggest package holiday firm, said the disruption had cost it £90 million ($133 million) after 175,000 holidays were cancelled and the company had to provide welfare to, and repatriate, over 180,000 holidaymakers stranded in resorts.

Chief executive Peter Long said, however, he thought the worst of the impact was over and did not expect any further disruption to have a material impact on earnings.

“The disruption now should be minimal as a result of the new protocols. We have got very clearly designated no-fly zones which can be tracked by satellite and we can re-route our aircraft to avoid these areas,” Long told reporters on a conference call.

EasyJet said the ash-related disruption would have a significant impact on its annual financial performance and, in response, cut its expectations for full-year profit. “Without the volcanic ash disruption our full-year pretax profit would have been somewhere between £175 and £200 million ($259 to $296 million), but that has now come down to between £100 and £150 million ($148 to $222 million),” easyJet chief executive Andy Harrison told reporters.

“The ash disruption has cost us between £50 and £75 million ($74 to $111 million) and we’ll have to see in what shape compensation claims come in, which is why we have given a reasonably wide range on the costs of the volcano.”

EasyJet, which posted a smaller-than-expected first-half loss, has so far been forced to cancel over 6,500 flights, disrupting around 850,000 passengers and is currently seeking compensation from governments.

The biggest closure lasted for almost a week from April 15, causing about 100,000 flight cancellations, stranding millions of passengers and costing airlines more than $1.7 billion in lost revenue.

European air traffic agency Eurocontrol said on Monday areas of higher ash concentration could move from over the Atlantic Ocean back toward the Iberian Peninsula, threatening fresh airspace closures in Portugal and Spain.

Ferrovial-owned British airports operator BAA said the chaos, which contributed to a 23 percent decline in April traffic at its airports, had cost it around £30 million ($44.3 million).

However, Fraport, operator of Germany’s Frankfurt airport, raised its 2010 outlook on Tuesday, brushing off concerns over further disruption.

Fraport said its operating profit would take a €20 million ($25.4 million) hit due to the ash cloud, as one million fewer passengers came through Frankfurt airport.

Lufthansa, Fraport’s biggest customer in Frankfurt, has said it lost almost €200 million ($254 million). The German flag carrier is due to report April traffic figures at 1100 GMT. Shares in TUI Travel were down 3 percent to 251 pence at 1013 GMT with rival Thomas Cook, which reports first half results on Thursday down 1.7 percent to 222.3 pence ($3.284).

EasyJet were 3.7 percent lower at 426 pence ($4.26). Lufthansa shed 2.1 percent to €11.42 ($14.49). Fraport were down 1.9 percent to €37.67 ($47.80).

(Editing by Mike Nesbit)

Topics Insurtech

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