Volcanic ash affecting U.S. businesses

Canceled and delayed flights are causing the airline industry a loss of $200 million a day

Published April 16, 2010 8:37PM (EDT)

Overnight shipping, airlines and tourism were just some of the businesses that faced a second day of disruptions as a cloud of volcanic ash emanating from Iceland grounded thousands of flights to and from Europe.

The airline industry is losing an estimated $200 million a day and delays and cancellations are expected to last at least through the weekend. The impact on businesses that depend on air freight to ship products to and from Europe appears limited for now, although analysts stressed that the stakes would rise each day flights are halted.

The air traffic agency Eurocontrol said almost two-thirds of Europe's flights were canceled Friday, as air space remained largely closed in Britain and across large chunks of north and central Europe.

Large cargo planes that a number of businesses rely on for time-sensitive shipments are being disrupted as well. Major shippers like UPS and FedEx are seeing delays as they move more things by truck to account for airport closures in Europe.

The biggest concern was for shipments of perishable items like flowers. Otherwise, businesses that rely heavily on air freight because of the type of products they ship expressed confidence that customers have enough inventory to a few more days of delays.

"Some businesses will be affected by the inability for freight to get in and out of the country," said Howard Archer, chief European and U.K economist at IHS Global Insight in London. "As long as the disruption is not too long, this should not be a major problem."

Archer thinks the impact on the United Kingdom's economy will be limited, too. People stranded in Britain, for instance, will need to find places to stay and eat, meaning they'll spend their money there, rather than abroad. That should counter losses to retailers from tourists and business people not being able to get into the country.

For now, the most obvious impact is on air travel. At least one airline, Ryanair Holdings PLC, the leading low-cost airline in Europe, has canceled flights through Monday.

Flight cancelations can have a cascading effect because if a plane is grounded in Europe, it can't get to the United States for a return trip the next day, even if the European airspace is open.

Grant Foster, risk consultant for insurance broker Aon Corp., said issues with travel and products getting delivered "are going to get quite critical over the next couple of days."

But, he added: "As a whole, the impact isn't a show stopper in the short term."

But not everyone is crying foul over the plume of smoke. The aviation disruption has been a boon to train and bus service in Europe.

The stranding of thousands of travelers has also led to an uptick in virtual conferencing and the need for temporary offices. Regus, a company that provides meeting rooms and virtual offices worldwide, said it has seen an unprecedented spike of its more than 2,500 video communication suites. Reservations are up 38 percent in the UK, 12 percent across Europe and 9 percent in the US.


AP writers Jane Wardell in London, Jeannine Aversa in Washington and David Koenig in Dallas contributed to this report.

By Samantha Bomkamp

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