Just when it thought it was about to take off after enduring a turbulent journey, mired by soaring oil prices and a worldwide economic crisis, the global airline industry faces new mounting losses to the tune of $1.7 billion (Dh6.2bn) due to six days of flight disruptions across Europe last week.
International Air Transport Association (Iata) director general and CEO Giovanni Bisignani describes the recent air travel crisis as “devastating” considering that it hit one of the world’s busiest airport, United Kingdom’s London Heathrow, which caters to over 70 million passengers a year.
“For an industry that lost $9.4bn last year and was forecast to lose a further $2.8bn in 2010, this crisis is devastating. It is hitting hardest where the carriers are in the most difficult financial situation. Europe’s carriers were already expected to lose $2.2bn this year — the largest in the industry,” Bisignani said in a statement released on Wednesday.
It may be recalled that in March, Iata offered a glimmer of hope for the industry when it reported that passenger traffic demand worldwide rose by 6.4 per cent in January and by 9.5 per cent in February as compared to the same periods in 2009.
However, ash from the April 14 eruption of Iceland’s Eyjafjallajökull volcano had prompted over 20 European countries to shut down their airspace for six days (from April 15-20) as a safety precaution, paralysing the air travel sector not only in Europe, but also in other parts of the world.
According to Nadejda Popova, industry analyst-Travel and Tourism of Euromonitor International, the volcanic ash – which is a mixture of glass, sand and rock particles – is considered an air safety threat as it could stall aircraft engines. However the past few days have proven that the ash cloud was also a great economic threat.
“Any signs of recovery following the impact of the economic crisis on the airline industry are wiped out now,” Popova said.
She added that the level of flight disruption following the no-fly ban in Europe had been unprecedented. “Even after the impact of the 9/11 terrorist attacks in 2001, European airspace was not closed for such a long period, illustrating the severity of the crisis,” she said.
Iata earlier estimated the airline industry’s daily losses at over $200m per day. Dubai-based carrier Emirates confirmed that they lost an estimated $10m a day due to the no-fly policy imposed across Europe. The grounding of thousands of flights had resulted to over 7 million travelers stranded and a still undetermined amount of lost revenues from cargoes that were not delivered.
“Closing the airspace cuts the vital supply for the European economy and its global distribution links as airlines globally cancel their European flights,” says the Euromonitor analyst, who added that the EU economy had likely lost approximately $3bn based on Royal Bank of Scotland’s predictions.
Aside from stranded passengers, the grounded flights also caused havoc on air freight services commissioned to deliver goods, food items (particularly fresh foods such as fruits, vegetables, fish and meat) and pharmaceutical products worldwide.
Post-crisis scenario: ‘legal minefield’ over no-fly ban
Amid the chaos, airlines and aviation associations had been quick to point out the discrepancies surrounding facts related to the EU governments’ decision to declare Europe airspace as a no-fly zone.
In a report, Popova stated that European airline associations such as the Airports Council International (ACI) and the Association of European Airlines (AEA) have urged the EU to extend financial support so as to help the industry buffer against the losses incurred during the disruptions.
The Sydney-based Centre for Asia Pacific Aviation (Capa) said the post-travel-crisis scenario will likely be highlighted by a backdrop of lawsuits from practically all segments of the industry – from passengers suing airlines to airlines suing government agencies.
Capa noted in one of its aviation analysis that aero-engine manufacturers have reportedly threatened to withdraw warranties on any engine flown through the ash cloud.
“Engine warranties are big business for airlines – engines can cost as much as 40 per cent of the total aircraft price. Interestingly, and in a strange case of role reversal, although large parts of Norwegian airspace opened on April 20, two airlines, SAS and Norwegian, declined to fly as they deemed the cloud to be too thick. In the air, the dust cloud, on the ground a legal minefield,” the agency said.
A recent international media report has also quoted UK-based lawyers as saying that they expect a number of class actions by airlines and companies against government agencies if they are not compensated for their losses.
Iata had been very vocal in expressing its dissatisfaction over the European governments’ handling of the travel crisis, specifically criticising what it believed to be the authorities’ lack of fact-based risk assessment, consultation, coordination and leadership.
“It is incredible that Europe’s transport ministers have taken five days to organise a teleconference. Governments must place greater urgency and focus on how and when we can safely re-open Europe’s skies,” Bisignani said in an April 19 statement.
Another development worth following up after this “travel mayhem” would be the outcome of a study being conducted by General Electric and other aircraft engine makers, as well as regulators, that seeks to determine safety risks associated with operating jet engines in volcanic ash.
Aviation vital to economic development
Euromonitor’s Popova mentioned that while the airline industry grounded to a halt during the European airspace closure, land and sea transports buck the trend and operated to full capacity.
“Ferry, railway and bus operators along with car rental players have recorded a strong increase in bookings. Companies such as P&O [registered] a surge of customers in one day from 100 to nearly 6,000 foot passengers across the Channel, while Eurostar [saw] an increase of 50,000 more passengers from the moment the European airspace closed,” she wrote.
Meanwhile, Capa said the disruptions only highlighted the greater significance of aviation in not only physically moving people across continents, but also helping stir global development in trade and economy.
“Nearly one third – by value – of all world trade in goods moves by air. Our whole global economy is built around fast movement of high value products, from fresh produce, through computer products, car parts, urgent medical supplies and even gold. More economically importantly even than that, entire supply chains rely on immediate delivery of ingredient products for manufacturing and retailing,” it said.
Aside from commerce, Capa believes that one of the greatest casualties of the nearly week-long chaos was the tourism industry, which represents a vital part in generating revenue for many countries.
“Aviation’s value in world commerce and communications is generally taken for granted – until it stops,” says Capa.
Consider also reading:
Europe air traffic disrupted by volcanic ash
UAE airlines resume normal Europe operations
Europe ash cloud dents Gulf Arab luxury food supply
Dubai's Emirates loses $10m per day due to ash
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