Iceland’s Volcanic

We have heard and talk a lot in the wake of Iceland’s misbehaving volcano. These volcanic antics have disrupted air travel worldwide and it must be a bitter pill to swallow for all of us. Demonstrating the unpredictability of volcanic eruptions, Britain’s National Air Traffic Service said on Monday afternoon that airspace in Scotland and parts of northern England would reopen on Tuesday morning, and sounded optimistic that the rest of Britain would be cleared for flying later in the day; but later switched to a more cautious tone as a new ash cloud began spreading. Earlier, Norway, Sweden and Finland had allowed a few mainly domestic flights to operate.

It will have material impact for European carriers, especially for premium/business travel as time critical business trips will not get rebooked and business travelers will look at other options, like video conference etc. It will also have an impact on the near term earnings of the Asian/Australasian airlines as well, but the impacts are likely to be relatively smaller.

The mainland Chinese airlines have minimal exposure to Europe with most of their business largely coming from domestic revenues, and most of the airlines have a single digit exposure. Singapore Airline has a larger exposure to Europe, historically about 20-25% of their revenues coming from Europe route. Load-factors for Europe have also been picking up recently with passenger load factors averaging +80% since October last year. Taiwanese Airlines, EVA and China Air said they cancelled some of their flights to Europe and estimate the number of passengers to be influenced to be around 1,000 people per day. Europe contributes 17% for China Air and 14% for EVA Air, including both cargo and passenger revenue. Cathay Pacific has about 18% exposure to Europe route but the company has not been seeing too much growth on the Europe route in recent months. Korean Airlines seems to be negatively impacted with Europe route accounts for about 20% of total revenue. The impact on the cargo business seems to be more negative, but will likely to pick up significantly due to delays once current volcano issue dampens.

More worrying is the impact on Thai Airways because European routes account for 38% of RPK. Despite the recent political turmoil in Thailand, passenger load factors of these routes had been holding up well – high 70s. THAI has cancelled 22 flights per day into Europe, but is offering additional services to three airports in southern Europe – Rome, Madrid and Athens as an alternative for standard passengers. Management says the cancellations are affecting 6,000 passengers per day and currently 15,000 passengers are stranded.