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Iceland volcano crisis will hit European airlines worse than U.S., experts say

More flights resumed Wednesday as more European air space was opened, but officials warned that days of grounded planes because of Iceland's volcano could cost the airline industry more than $1.7 billion.

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Washington Post Staff Writer
Thursday, April 22, 2010

The Icelandic volcano crisis has wreaked havoc on passengers and airports across Europe, and it may drive a few European airlines into bankruptcy. But analysts expect the crisis to cause far less economic damage to carriers in the United States.

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The International Air Transport Association said Wednesday that the ash crisis has led to the cancellation of 100,000 flights and cost the world's airlines an estimated $1.7 billion. The group said airlines lost $400 million per day between Saturday and Monday, the period when air traffic disruptions were greatest.

Analysts say that European carriers will feel much of the impact as people rethink future travel plans.

"For European carriers, it's a great big question mark," said Michael Boyd, an aviation analyst in Evergreen, Colo. "We don't know if the Iceland volcano is going to blow up again."

Boyd estimates that U.S. airlines have lost $100 million in revenue related to the crisis since it began Thursday. He said the losses would not threaten the long-term health of the U.S. industry.

The crisis could, however, delay the modest recovery that airline officials had hoped for this year. Global airlines are expected to lose $2.8 billion in 2010, compared with $9.4 billion lost last year. European carriers were expected to lose $2.2 billion, the worst result of any region, according to an IATA projection from March.

George Hobica, founder of Airfarewatchdog.com, said he has spotted deals to some European cities in recent days, as airlines begin to cut fares to boost demand.

"People are going to be a little wary about being stranded," he said. "There were so many images on television of people sleeping on airport floors for a week."

Robert Herbst, an industry analyst based in St. Louis, said the volcanic ash crisis has caused European airlines "drastic harm" and could push smaller carriers into bankruptcy. He said the crisis would have minimal impact on the U.S. industry.

Herbst said uncertainty about the volcano could cause travelers from Asian countries to opt for summer vacations in the United States, lifting demand for seats on U.S. carriers. He said U.S. travelers might decide to fly to domestic destinations or locations in the Caribbean.

Giovanni Bisignani, IATA's chief executive, urged airports and governments around the world on Wednesday to look for ways to minimize the financial strain on airlines. He criticized passenger-rights regulations in Europe that require airlines to pay for hotels, meals and telephones for stranded passengers, calling the rules an "unfair burden" on the region's carriers.

IATA said the scale of the disruption for the world's airlines eclipsed the aftermath of the September 2001 terrorist attacks, when U.S. airspace was closed for three days. U.S. aviation analysts challenged the claim, saying it might be true for European airlines but not for U.S. carriers.

In the current crisis, both U.S. and European airlines will lose money because they depend heavily on flying between the United States and Europe for revenue and profits. Transatlantic routes are among the industry's most lucrative because of the high number of first-class and business-class customers.

U.S. airlines will fare better because they have stronger domestic networks and have many international flights outside of Europe, Boyd said. American Airlines, for example, is a big player in transatlantic flying but it also has a strong route network in the Pacific and in South American regions.

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