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Volcano could build into major business problem

By Jane Wardell
AP Business Writer / April 16, 2010

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LONDON—The eruption of a volcano in the tiny, isolated island nation of Iceland is threatening to turn into a major headache for businesses across Europe and around the world as a spreading ash cloud closes more European airports.

Airlines are already counting the cost of grounded planes, and there are growing fears about the transportation of food supplies and other essential goods should the flight disruptions persist for several days -- or longer.

But there were also some early winners from the unprecedented situation, with rail, bus and ferry tour operators all quick to lay on extra services for stranded business and leisure travelers as hotel rooms filled up.

Airline shares took a hit as the Geneva-based International Air Transport Association estimated that the disruption is costing the industry some $200 million a day in revenues. IATA added its forecast was "conservative" and costs will mount further as carriers reroute aircraft and care for stranded passengers.

Eurocontrol, the European air traffic agency, said some 17,000 flights were canceled on Friday, more than half the 28,000 that usually operate. Delays and cancelations will continue on Saturday as the ash cloud from the eruption of the volcano beneath Iceland's Eyjafjallajokull (ay-yah-FYAH'-plah-yer-kuh-duhl) glacier moves south and east. The flight ban was imposed because of concerns about pilot visibility and jet engine failure from the ash.

Ashley Steel, global chairman for transport and infrastructure at professional services company KPMG, said that the biggest losses would come from trans-Atlantic business traffic, with the impact on economy class revenues muted by the fact that people would likely change their bookings to a later date.

"This is yet another dramatic and costly event for the global aviation industry which will have a significant impact on annual revenues," Steel said, adding that the development reinforced the case for consolidation of the international airline sector.

"Truly global airlines will be much better placed to deal with the financial fallout from these types of events," he said.

British Airways shares dropped 1.1 percent, German flag carrier Lufthansa lost 2.1 percent and Air France-KLM slipped 1.7 percent.

There were few early reports of major impacts on exports and imports, but analysts stressed that the stakes would rise each day of the flight ban.

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

The pharmaceutical industry is particularly reliant on air freight because of the high value and low weight of their products.

The Italian farmer's association said that it may become an issue to import out of season goods from other areas, even though Italian airports are still open as shipments often come via other major European cities.

Chiara Coffele, export manager of the family Coffele winery in Soave, Italy, was unsure whether she would make a wine festival and other business appointments in Norway in the coming days after her flight from Milan was canceled on Thursday.

Coffele travels two or three times a year to Norway, where the family sells 15 percent of the 510,000 bottles of wine it produces annually. The three-day Stavanger wine festival is usually a key network event.

While others are missing some holiday work because of the flight cancelations, "I get a little less work," Coffele said.

A spokesman for the flower market in Berlin, which sells flowers that have been imported from all over the world, said there had not been any problems with the delivery on Friday morning and he was not aware of logistical problems for Saturday's flower trade. Several sushi restaurants said they get fresh fish on Thursday and had no deliveries until Monday.

As Europe's airports emptied, travelers instead crowded train stations, bus depots and rental car offices.

The high-speed Eurostar rail service linking Britain and continental Europe reported thousands of new bookings for the next few days.

National railway operator Deutsche Bahn said it deployed all available trains and asked personnel to work extra shifts on the weekend. Nonetheless, it warned of overcrowded trains and long lines at booking counters. Norway's NSB railway company put extra trains on routes from Oslo to major Norwegian cities and the Swedish capital, Stockholm.

Germany's Sixt car rental reported long lines at German branches.

"There's a rush on our rental offices," said spokesman Frank Elsner. "We're trying to mobilize everything we can and try to offer an additional 2,000 cars across Europe in cooperation with our partners to make sure travelers can get back home on the weekend."

In Britain, Network Rail canceled the bulk of engineering work that was planned for the next few days and also added extra services.

At the Jumbo Hostel -- a Boeing 747 remodeled into a 27-room hotel just outside the Arlanda airport in Stockholm -- rooms were filling up fast.

"I think we'll be full tonight," said manager Oscar Dios. "It's this sort of thing that we're here for. There is no place to go at the airport."

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AP reporters Robert Barr in London, Kirsten Grieshaber and Geir Moulson in Berlin, Ian MacDougall in Oslo, Colleen Barry in Milan and Frank Jordans in Geneva contributed to this report.