U.S. airlines are seeing a major disruption because of hundreds of flights canceled due to the ash cloud from the Icelandic volcano, but European carriers will face the biggest losses.
The airline business has been tough: The recession dramatically slowed traffic; February blizzards forced U.S. airlines to cancel thousands of flights; and now the fallout from the volcano stopped all traffic in and out of northern Europe for days. But there is some good news.
"For U.S. carriers, it'll be a relatively short-term hit," said Michael Boyd, president of Boyd Group International, an aviation consulting firm. "We think right now they're down about $80 million in terms of lost revenue, and they're down domestically about 80,000 passengers that would have been flying domestically but aren't because they can't get here."
Delta announced that volcano-related disruption grounded about 400 flights as of Monday at a cost of $20 million in lost revenues. But compare that to the recent snowstorms, when the airline canceled 7,000 flights and lost $65 million in revenue.
Running Lean Operations
The disruption has created uncertainly for customers, but analysts say U.S. airlines won't face as many costs as you might think. They are not flying in extra planes to handle the stranded passengers because, airline analyst Robert Mann said, companies simply don't have them.
"Airlines run a very lean operation now," Mann said. "So, since there are no spare aircraft or crews, the airlines will attempt to maximize loads on every one of their aircraft that do fly. But it may take days, or in some cases a week or so, to get some of these customers to where they want to go."
Airlines are still selling tickets on future flights and will accommodate those whose flights were canceled as best they can. That likely means more waiting and rerouting passengers to other U.S. cities to get them back home.
Mann says the lost revenue will be offset, in part, as carriers do not use costly fuel when planes sit idle on the ground.
"It's not the equivalent of looking at an ever-rising cost of fuel," Mann said. "We're talking about a four-day event. And that's the extent of it."
Costs Of Disrupting The System
U.S. airlines will refund some tickets and pay to house dislocated crew members. But analysts say they don't pay much to disrupted passengers when flights are delayed or canceled because of storms, volcanoes or other acts of God. Still, it's going to take some time for all of the airlines to get back on track.
"There are all sorts of problems people don't even think about," said airline industry analyst John Pincavage. "Anytime you disrupt the system, you're going to add extra costs, because, for example, you've totally messed up your entire crew scheduling system.
"Now you're going to get down toward the end of the month, and even if you have the airplanes available, you may not have the people."
The economic impact on U.S. airlines will not be nearly as bad as the effect on European carriers that have been virtually shut down.
Although Delta Airlines announced Tuesday a loss of $256 million in the first three months of the year, and other American airlines are expected to post losses as well, U.S. airlines are looking forward to a stronger summer travel season and the hope of profitability in the second quarter.
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