Volcano's economic impact may be modest

The volcano shutting European airports is bad news for travellers and airlines, but the overall economic impact may be muted.

The International Air Transport Association estimated Friday that airlines will lose $200 million US a day from the closure of airports all over northern Europe.

That's about one-seventh of the airline industry's average daily revenue.

About 16,000 flights were cancelled Friday, because the cloud of ash from a volcano in Iceland poses a threat to aircraft engines and reduces pilot's ability to see. Europe typically sees 28,000 flights a day, said Eurocontrol, the agency that manages air navigation for 38 European countries.

The cancellations were reflected in stock markets, where the prices of flagship airlines for three hard-hit countries fell. British Airways shares fell 1.1 per cent, Germany's Lufthansa fell 2.1 per cent, and Air France-KLM dropped 1.7 per cent.

The American Stock Exchange airline index was down more than three per cent in early afternoon trading.

Other forms of transportation in Europe, however, are booming. The Eurostar high-speed train between London, Brussels and Paris reported a surge in bookings.

Germany's train service has asked employees to work extra shifts over the weekend.

A car rental agency reported long lines at its German branches.

"We're trying to mobilize everything we can and try to offer an additional 2,000 cars across Europe in co-operation with our partners to make sure travelers can get back home on the weekend," said Frank Elsner, spokesman for the Sixt car rental company.

The pressure on airlines is the most obvious impact, but other businesses are assessing the extent of the problem. Even commodities that travel by air, such as pharmaceuticals and some foods, are facing different situations.

A drug shipment could be delayed, but a perishable product will lose value if not delivered. "As long as the disruption is not too long, this should not be a major problem," said Howard Archer, chief economist at IHS Global Insight in London. 

While hard on airlines, problems like the volcano often have little longer-term impact, said Erik Nilsson, an economist with the Bank of Nova Scotia. "It's not lost business, just disrupted business," because what's not done today can be done tomorrow.

Even the impact on air travel may be less than feared if economy-class travellers simply change their bookings to a later date, said Ashley Steel, global chairman for transport and infrastructure at consulting firm KPMG.