Easyjet and Tui Travel hit hard by Iceland's ash cloud

Click to follow
The Independent Online

As if the global financial crisis was not enough, the volcanic ash cloud that shut down the bulk of European airspace for five days last month added a biblical flavour to the travails of the beleaguered travel industry.

Easyjet and TUI Travel were yesterday the latest British companies to put a cost on the eruption of Iceland's Eyjafjallajokull volcano. Easyjet reported a better-than-expected first-half pre-tax loss of £78.7m. But the budget carrier said the volcano forced it to cancel more than 6,500 flights, costing the company between £50m and £75m and pushing down the group's full-year profit guidance to between £100m and £150m. Previously the budget carrier was predicting profits of between £175m and £200m this year.

Chief executive Andy Harrison said: "Easyjet will deliver substantial profit growth in 2010, through the worst recession in 70 years and even after absorbing snow- and volcanic ash-related disruption costs from the worst snowfall in 30 years and an unprecedented five-day closure of much of European airspace."

Meanwhile, TUI Travel – which owns Thomson Holidays – said the ash cloud had forced it to cancel 175,000 holidays and repatriate 180,000 customers, costing the company £90m. In the meantime, the company reported first-half losses of £314m, some £25m worse than last year, despite a £47m year-on-year improvement in the second quarter.

Despite the difficult numbers, TUI's results beat analyst expectations, and the company said the ash-cloud crisis was not expected to hit plans for summer holidays. Tui said trading was strong up until the Icelandic eruption. Not only have the company's cumulative bookings remained above the prior year in most markets, but demand has picked up again in the aftermath of last month's disruption.

Peter Long, TUI Travel's chief executive, said: "Despite the impact of the disruption [from volcanic ash in April], I expect positive momentum in the second half of the year as strong underlying demand improves trading and merger synergies continue to be delivered.

"Excluding the impact from the volcanic ash disruption, I remain confident that we can meet the board's original expectations for 2010," he said.

TUI and Easyjet join a long list of companies that have been hurt by the Icelandic volcano. The European Transport Commissioner has estimated a total cost to the region's business of up to €2.5bn (£2.1bn). And the world's airlines alone have shouldered total costs of $1.7bn (£1.1bn), according to the International Air Transport Association.

British Airways says the six days of chaos cost it around £100m. Aer Lingus, the Irish carrier, put its "ash costs" at €20m. Airports operator BAA estimated the impact at £28m. A study by the Centre for Economics and Business Research has warned that air passengers could face an 11.5 per cent rise in ticket prices as airlines try to recoup the costs.

Airlines across Europe are calling for government compensation for their losses. But the crisis is not entirely over. Although changes to the rules have made regulators more flexible in closing air space, Aer Lingus yesterday reiterated complaints that the regulators' reaction was "unjustified" and urged the EU to revise its procedures for predicting ash levels.

There have been a number of spot closures since the initial debacle last month, including disruptions in Scotland, Portugal, Germany, Spain and Italy at the weekend. Parts of Spanish air space were still closed yesterday.

Last week, the Chartered Institute of Purchasing and Supply said the disruption to business in April – particularly in the transport, storage and communication sectors – had materially weakened growth for a second month, after a slow, snow-bound January, despite reports of improved underlying economic conditions.