EU air sector loses €2.5bn from volcano eruption

EU air sector loses €2.5bn from volcano eruption
By Joshua Chaffin in Brussels
Copyright The Financial Times Limited 2010
Published: April 27 2010 15:36 | Last updated: April 27 2010 15:36
http://www.ft.com/cms/s/0/560f44f2-51fe-11df-a2a2-00144feab49a.html


Europe’s air transport sector suffered as much as €2.5bn in losses as a result of the Icelandic volcano eruption, according to a preliminary assessment by the European Commission that could pave the way for industry aid requests.

Siim Kallas, Europe’s transport commissioner, pegged the losses from the week-long disruption at “somewhere between €1.5bn to €2.5bn”, and said that the “exceptional circumstances … may justify support measures to offset losses incurred.”

Mr Kallas also said the Commission would propose a new risk management system for the aviation industry to deal with volcanic eruptions and called for the speedy implementation of proposals to create a unified European air traffic control system. At present, member states oversee their own air space, something they have jealously guarded for security and defence reasons.

“Stronger European co-ordination will not solve every problem. But faced with such a pan-European crisis, it would have enabled a much more agile response,” he said.

The Commission’s assessment is roughly in line with earlier estimates provided by the airline industry, and attaches the first official figures to an event that grounded tens of thousands of flights and stranded hundreds of thousands of passengers.

It has been hotly anticipated by the airline industry, which believes the report could form the basis for requests for aid from national governments – something that would have to be approved by the Commission to ensure that it did not violate the European Union’s competition rules.

Mr Kallas warned that any assistance would have to respect “a level playing field,” and could not be used to provide assistance to companies unrelated to the crisis. As such, the Commission is planning to publish fresh guidelines about what is and is not acceptable.

The assessment includes airlines, airports and tour operators, among others. The losses could increase depending on claims from hotels, retailers and other segments of the economy believed to have been affected.

The airlines have been hardest hit by the crisis. The International Air Transport Association last week estimated carriers’ lost revenues at $1.7bn. In addition to cancelled flights, airline executives have also cited the cost of complying with EU laws that obligate them to feed and accommodate stranded passengers while they are waiting to be re-routed.

Some have argued that they deserve state aid because flawed computer models used by the government were to blame for an excessively cautious approach that kept planes grounded even after it was safe to resume flights.

Mr Kallas on Tuesday reiterated a warning that airlines must abide by rules on passenger rights, saying that no carrier should seek to gain a competitive advantage by failing to do so.

He also proposed temporary measures to help airlines cope with the strain, such as easing restrictions on night flights and suspending rules that require airlines to fly routes with a minimum frequency or risk losing them.