ICELANDIC DISRUPTION: A MARKED DISASTER IN AVIATION HISTORY

TARIQ AHMED SAEEDI
(feedback@pgeconomist.com)

Apr
26 - May 2, 2010

Almost 12 days passed since the vast cloud of ash from the volcanic eruption at Iceland's glacier engulfed first the northern Europe and within one week overshadowed near 30 nations of European continent, and global airline industry—a prominent lose bearer of the disaster—still is counting on monetary losses it had swallowed. The airlines had started to resume flight operations following a five day complete moratorium.

Although the industry experts have put the tally near over one billion US dollar, considering the gravity of losses and extensiveness with which the shutdown of air traffics to and from the major destinations of the world impacted not only the airline business but also hit tourism and hotel industries and freight business, etc., the aggregate monetary loss would have equalled in billions of dollars.

Initial estimate extrapolating the financial shocks airlines had to factor in put the loss to around $300 million per day. However, the figure was contradicted with alternative estimate of $200 million per day. Airlines are losing as much as $300 million per day, according to a news report by Associated Press. AFP computed $200 million as airlines' lost revenue per day due to suspension of flights as well as exorbitant re-routing costs.

British Airways is emerging as the biggest sufferer of the costly disaster of history in the airline industry. Unfortunately, the dust cloud spewed just the time when industry gurus were seeing light at the end of tunnel as international business travel segment was recovering huge losses spurred by the economic recession last year. The biggest calculated amount was recorded by the International Air Transport Association (IATA) that said airline industry had suffered a collective loss of $9.4 billion. The disruption is being termed as the Europe's aviation chaos. Hundred of thousands long-distance passengers were stranded across the globe and till last week, according to IATA, aviation routes in over 30 European countries were declared no-go area or where flying could take place under strict conditions. The flights were grounded. Passengers were marooned at airports due to closure of flights to and from Ukraine, Poland, Germany, Belgium, United Kingdom, Netherlands, Denmark, Ireland, Estonia, Latvia, and restricted flights in some other destinations.

Stocks of airlines in benchmark international stock markets tumbled on the Icelandic dust storm. Dow Jones's heavy weights American Airlines AMR Corp. and UAL Corp each lost about 5 per cent in their shares' values on April 19, fifth day following the emission of ashes from the volcano of Icelandic glacier. UAL lost 5.3 per cent to come at $21.61 while AMR Corp's share dipped 5.1 per cent to $8.34. In midday trading on US three major stock exchanges during the same day, the Dow lost 13.30 points, or 0.1 per cent, to 11,005.36. The Standard & Poor's 500 index shed 5.54, or 0.5 per cent, to 1,186.59, while the Nasdaq composite index dropped 23.25, or 0.9 per cent, to 2,458.01. On the same day, Europe shares of airlines fell sharply, sending down Stoxx Europe 600 index 0.7 per cent to 266.09 points. Airlines declined on the fifth day on woes of disruptions and its financial fallouts with shares of Deutsche Lufthansa down 4.5 per cent, Air France KLM 5 per cent, and British Airways 3.8 per cent.

Tour operators and hotels were also affected by the closure and counted losses in millions of pounds to restart the businesses with a major dent. French hotel group drifted down 0.4 per cent while Britain-based Inter Continental Hotels shed 0.9 per cent on April 19. A bellwether UK holiday company TUI Travel slid 3 per cent after it disclosed that the cost of disruption on its group business would be approximately $31 million. Not all tour and travel related companies felt the waft with similar sensitivity. For instance, channel tunnel operator Eurotunnel snapped 1.5 per cent when Europe stocks were undergoing corrections. On regional front, French CAC-40 index decreased 0.3 per cent to 3,973.14, FTSE-100 lost 0.1 per cent to 5,735.95, and German Dex index witnessed a minor correction of 0.1 per cent to close at 6,178.62.

The outgoing decade has the airline industry already incurred massive monetary shocks of $50 billion in the shape of rising expenditures on security checkups and arrangements to avert epidemics like bird flu. The decade was started with 9/11 that was to bring about watersheds in political economies of many countries. Alone to offset the fiscal downturns of US airlines after the air strikes on world trade centres US congress had to chip in $15 billion aids and guarantees. Independent analysts are finding the traces of resemblance in two events: 9/11 and Icelandic hullabaloo as the later incident was said to make governments to cough up if not equal but significant funds to make up for airline industry losses.

A five-day complete suspension of flights also weighed down volumes of trade in some African countries dependent on airborne trade relations with European countries. It was a business headache for the traders engaged in trades of horticulture and agriculture with Eastern and Western Europe. An estimate said alone Ethiopia had to endure 1.75 million euros loss in temporary episode of halt in air freights—a significant amount for an underdeveloped economy.

The situation in Pakistan's airline industry was likened to other countries operating flights to Europe on daily or more than a day weekly. At least thirty two PIA flights to EU were cancelled that rendered the national carrier colossal loss of Rs500 million only in three days, as per an estimate of the airline. According to PIA's officials passengers who booked tickets with the airline and stranded in Pakistan or abroad were looked after by PIA. Stranded passengers on airports worldwide were provided with routine requisites. Around 6,000 seats were booked in grounded flights of PIA while the airline was bearing the expenditures of facilitating 400 passengers at different destinations across Europe. PIA had suspended its flights to UK's and other routes following Icelandic dust outbursts.