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Eyjafjallajökull's Economic Impact: Airlines Fear Losses Higher than 9/11

The disruption to air traffic caused by Iceland's volcanic ash is not just affecting German airlines' bottom lines. The knock-on effect on the entire economy could be severe. The initial estimates are of losses amounting to 1 billion euros a day.

Grounded Lufthansa aircraft at the Munich International Airport in Germany Zoom
dpa

Grounded Lufthansa aircraft at the Munich International Airport in Germany

Five days of quiet, plane-free skies have left Europe's airlines furious and warning that some companies may not survive. Now Brussels says it could come to the rescue of some of the airlines that are losing millions of euros a day due to closed airspace.

On Monday, Competition Commissioner Joaquin Almunia said that the European Union was prepared to react as it had after the Sept. 11, 2001 terror attacks. "If member states would decide to help with state aid and provided conditions for receiving state aid were not discriminatory, we are ready to think in a similar framework to after Sept. 11," he said at a conference in Brussels.

The International Air Transport Association (IATA) estimates that the losses caused by the volcanic ash cloud from Iceland could be higher than those incurred after Sept. 11, which saw airlines lose more than $10 billion (€7.4 billion). Officials at German airline Lufthansa alone say the company is losing €25 million a day.

Photo Gallery

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Photo Gallery: Empty Skies over Europe

IATA has warned that if the flight ban goes on for longer than a week that some of the 150 European airlines could go bust. The smaller airlines would be the first to go, IATA President Giovanni Bisignani said on Monday.

Airlines Slam Government

According to a study by the Swiss bank UBS, Europe's six biggest airlines -- Easyjet, Ryanair, British Airways, Iberia, Air France-KLM and Lufthansa -- together have seen losses of up to €140 million a day.

The ongoing paralysis is hitting Europe's airlines on the stock markets, as well. Shares in airlines fell by between 3.5 and 4.5 percent on Monday, with Germany's biggest airlines Lufthansa and Air Berlin each losing 5 percent of their value.

The two airlines have sharply criticized the flight ban in Germany, which after being eased somewhat on Sunday, has been re-imposed until 2 a.m. on Tuesday.

The two companies have slammed Transport Minister Peter Ramsauer and German Air Traffic Control (DFS) for closing German airspace. Lufthansa boss Wolfgang Mayrhuber said that the safety concerns had been unfounded. However, Ramsauer has insisted that he won't let himself be "put under pressure by the airlines" and emphasized that passenger safety was his top priority.

Meanwhile, his colleague Economy Minister Rainer Brüderle in Chancellor Angela Merkel's cabinet says he fears that the affects on the wider German economy could be significant. "If the global economic value-added chain is interrupted for a long period of time, then we get to a serious situation, because many of our industrial giants are dependent on air transport," he said in Berlin on Monday.

That was why Brüderle was inviting industry representatives to his ministry on Monday afternoon to discuss how to avert the worst affects.

Urgent, Perishable and High Quality Goods

There have already been initial attempts to calculate exactly what cost closing the airspace is having on the German economy. The Association of German Chambers of Industry and Commerce (DIHK) estimates that the losses throughout the economy are amounting to €1 billion a day. DIHK chief economist Volker Trier said on Monday that airlines, airport operators, tourism-oriented companies and parts of industry are all being affected.

For example, replacement parts and components for machines and facilities built by German manufacturers cannot be transported. Many medical supplies are also usually delivered by air. "Urgent, perishable or high quality goods" cannot simply be transported by trucks or ships instead of by air he said.

Around 35 to 40 percent of international trade is conducted by air. This would amount to trade worth around €350 billion from Germany, the equivalent of around €1 billion a day. There are, of course, compensatory factors and some businesses can make up the losses later "but not 100 percent," according to Trier.

The affect is already being felt in one of Germany's leading companies. Carmaker BMW is not able to send important components to the United States, a spokesman said on Monday. While the production in the plants was continuing as normal, if the flight ban continues for two more days, the situation could get critical. "In the worse case scenario the conveyor belts might stop," he said.

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Photo Gallery
Photo Gallery: The Ash Plume's Spread

Graphic: Iceland's Ice Bombs Zoom
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Graphic: Iceland's Ice Bombs


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