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29 March 2024

Ash clouds send aviation's H1 gains up in smoke

World GDP loses $5bn due to flight disruptions caused by Icelandic ash clouds over Europe . (AFP)

Published
By Bindu Suresh Rai

As we approach the halfway point in a year that was meant to see the revival of the world aviation industry, it is difficult to gauge if the economic clouds have lifted or are simply disguising themselves in the ash plume that has seen nearly $5 billion (Dh18.35bn) of global GDP literally go up in smoke.

Even as the financial crisis saw the global aviation industry posting an estimated $9.4bn of losses in 2009, as per the estimates of International Air Transport Association (Iata), the Middle East emerged a clear winner with Emirates Airline posting a record 416 per cent jump in profits to earn $964 million for its financial year ending March 31, 2010.

In comparison, European carriers posted record losses, with the combined tally of British Airways, the Air France-KLM Group and Lufthansa hitting nearly $2.8bn.

Iata, the Geneva-based aviation trade body, which readjusted its 2010 loss forecast from $5.6bn to $2.8bn in March, will probably revisit this figure later this month courtesy an obscure Icelandic volcano that set in motion one of the world's biggest aviation crises last month.

Q1 rebound

According to Iata's latest statistics, airline finances rebounded strongly in the first quarter of this year, as a strong increase in cargo and passenger demand far outweighed extra capacity from new aircraft. A sample of 50 of Iata's 230 member airlines saw net post-tax losses halve to $2bn in the first quarter of this year from $4.1bn a year earlier, while operating losses shrank to $447m from $2.9bn.

Strong improvements were recorded in all regions except Europe, where net losses deepened, with airlines in the sample from Latin America and the Asia-Pacific moving back into net profit reflecting stronger economic recovery in those areas.

Iata noted that the first-quarter financial results are always weak for seasonal reasons, and airlines typically make 80 per cent of their earnings in the second and third quarters.

"This year, there were signs of a significant improvement in all regions at the operating level, though Europe stands out as the weakest performer – even before the impact of the ash plume," Iata said in a statement.

The pace of improvement in passenger load factors – a measure of capacity usage – slowed in March and April but it remains near records when seasonally adjusted.

In the UAE, Dubai Airports said that during the first quarter of the year, international passenger traffic grew 20.4 per cent, while cargo volumes rose 26.4 per cent.

Meanwhile, passenger traffic at Abu Dhabi International Airport rose by 13.8 per cent during the first quarter of 2010, according to the Abu Dhabi Airports Company (Adac), and cargo volumes rose 22 per cent, year on year.

The April crisis

All that changed, however, with April's eruption of the Icelandic volcano. And while the ramifications of the ash cloud may still be emerging, Iata's figures appear grim. While international air traffic slumped 2.4 per cent in April, European carriers posted a demand drop of nearly 11.7 per cent in the same month, compared to a 6.2 per cent rise in March.

The result of Eyjafjallajokull's ash cloud saw the industry suffer $1.7bn in losses over a six-day period where nearly 1,000 flights were grounded and 10 million passengers stranded.

"Lost revenues now total more than $1.7bn for airlines alone. At the worst, the crisis impacted 29 per cent of global aviation and affected 1.2m passengers a day. The scale of the crisis eclipsed 9/11 when airspace in the US was closed for three days," Giovanni Bisignani, Iata's Director-General and CEO, said in a statement.

Lufthansa Chief Executive Wolfgang Mayrhuber has estimated the shutdown cost Lufthansa about €200m (Dh879.94m), while BA's estimate settled at £100m (Dh531.64m).

In the region, Emirates Airline lost in excess of $66m (over a six-day period), while Abu Dhabi-based Etihad Airways posted an accumulated loss of $30m over the same period.

Meanwhile Qatar Airways' Chief Executive Officer, Akbar Al Baker, told the media: "We are losing $5.5m a day, over the bans." Yet, despite the losses, the Middle East proved resilient to the ash cloud and posted a traffic growth of 13 per cent in April, and a 25.9 per cent growth in March.

Last month, the UAE General Civil Aviation Authority (GCAA) said the Icelandic ash cloud's impact on local airlines saw air traffic movement decline by more than 1,000 in April compared to the previous month.

However, despite the interruption to air operations in most European airports, the UAE air traffic movements grew 10.6 per cent, reaching 52,300 compared to 53,700 in March, according to the GCAA.

Global GDP plummets

The domino effect of the ash cloud saw nearly $5bn in global GDP lost to air travel disruption, according to a report released last week at the World Travel and Tourism Council's 10th Global Travel and Tourism Summit in Beijing, China. The study by economic forecasting consultancy, Oxford Economics, found that passengers, airlines and the destinations themselves were not the only losers in the recent airspace shutdown.

Adrian Cooper, CEO at Oxford Economics, said: "The far-reaching impacts of the disruption to air transport have, of course, been felt acutely by travellers, airlines and destinations. But the impact has also been felt by those who rely on goods that are imported and exported by airfreight, and on general production and productivity."

The Economic Impacts of Air Travel Restrictions Due to Volcanic Ash indicated reports that for the one week from April 15 to 21, more than 100,000 fewer flights crossed European airspace than in the previous week, representing a 53 per cent fall. Net aviation sector losses amounted to $2.2bn after accounting for deferred travel; net visitor expenditure losses tallied $1.6bn after accounting for monies spent by stranded passengers is taken into account.

According to the report, the Middle East and Africa region lost $591m in GDP, ahead of Asia, which lost $517m in GDP. America came in at second place with $957m, while Europe took the lion's share of GDP losses at $2.63bn.

The only way is up

The recovery in airline performance seems to have resumed in May, particularly for European carriers, Iata said last week. It said there was little reason for jet kerosene prices to break out of the $80-100 per barrel range they have held for the past six months, as ample inventories were likely to outweigh the impact of any resurgence in economic optimism. Prices fell back during May as the Greek sovereign debt crisis raised uncertainties about the strength of the recovery. But higher load factors for both passengers and freight are allowing fares to rise, with premium fares now rising by about 10 per cent a year and economy fares at half that, indicating stronger market conditions.

The summer period, usually one of the most lucrative for the aviation industry, is already picking up in the UAE. Experts have already indicated summer bookings are expected to increase by 25 per cent compared to last year, with airfares following close by way of a 20 per cent jump.

"Bookings have already started coming in, albeit a slower pace than we hoped," Rajiv Vats, Kanoo Holidays' Country Manager for UAE and Oman, recently, told Emirates Business. "We had expected a rush with early 80 per cent of bookings being full right now, but we have only filled 50 per cent. However, if I compare the numbers with last summer, I can see a surge of nearly 25 per cent."

Iata's latest figures indicate that even though fares are rising, they are still 16 per cent below the pre-recession levels.

Historically, Q3 and Q4 are usually the most lucrative periods for airlines, and experts are indicating that the latter half of the year will result in positive growth. However, Iata fears further capacity utilisation gains will be hard over the rest of the year as a further 1,340 aircraft are delivered, warning that the environment for yields may not be quite as strong in the second half if demand growth slows from the rapid pace of the first quarter of 2010. It thus remains to be seen whether or not the second half of the year would prove to be a smooth landing for airlines.