Icelandic volcano fallout: $4 million per day loss for Canadian airline industry

TORONTO – Canada’s air travel industry stands to lose up $4 million a day due to flights grounded ash clouds in one of the world’s busiest flight corridors, an analyst estimates.

“This is totally unprecedented in the history of the airline business,” said airline analyst Robert Kokonis of travel consultancy Air Trav Inc., who estimated that after five days of disruptions, nearly $20 million was lost to Canada’s air travel industry.

“The problem is this volcano couldn’t be situated any worse… the transatlantic air corridor is infinitely busier than the North Pacific air corridor.”

European Union transport ministers agreed Monday to partly reopen northern Europe’s skies amid sharp criticism by the international airline industry that governments were foot-dragging.

Kokonis suggested if the disruptions continue, there could even be layoffs at airlines and airports because of reduced service.

“If this goes on much more than another few days, I think we’re going to see (some international operators), starting with some smaller carriers, shut their business,” Kokonis said.

As Canada’s most frequent European flyers, Air Canada and Air Transat have seen the biggest impact from the disruptions. WestJet (TSX:WJA) did have to cancel or delay some flights in and out of St. John’s, N.L., Monday, but due more to heavy fog than the threat of volcanic ash.

Air Canada is losing about $2.6 million each day on about 36 grounded daily flights that would be carrying about 6,500 passengers, Kokonis estimated. It also stands to lose another $400,000 a day in lost cargo revenue. Kokonis estimated tour operator Air Transat (TSX:TRZ.B) was losing close to $750,000 a day.

David Tyerman, an airline analyst at Genuity Capital Markets, said Air Canada’s European operations make up about 20 per cent of its revenue.

“Air Canada has fixed costs that its running day in day out whether its running the airplanes or not,” Tyerman said.

“They won’t be earning any income on the North Atlantic as long as the volcano prevents them from flying it, so they’re losing that chunk of revenue to offset those costs that are there whether they’re earning revenue or not.”

The International Air Transport Association said the shutdown is costing about $200 million per day, but Kokonis says the impact is more widespread. Airports, shipping companies, tour operators and travel agents are also suffering from the loss of would-be travellers to Europe as they continue to see flights to the continent cancelled.

Canadian airports, especially Toronto, Montreal and Vancouver, which see the busiest European traffic, are losing money in everything from landing fees to concession purchases. And travel agents who book corporate clients flying last-minute are also losing out, he said.

Kerry Sharpe, spokeswoman for Thomas Cook Canada Inc., said the tour operator has been working to assist hundreds of stranded customers, though she could not put a price on what the delays would cost the company.

Still, losses are not as severe as they might have been, given that the disruption happened just before the peak European travel season, which begins in May.

Tyerman said investors will likely pay more attention to the impact of the economic rebound on the airline industry than a short-lived act of God.

“Unless this drags on for months and months, it’s probably going to be a fairly small blip on the radar,” he said.

Shares in Air Canada rebounded from a five per cent drop earlier Monday to close at $2.50 while Air Transat shares closed down 12 cents to $13.47 on the Toronto Stock Exchange.

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