Volcanic Ash Fallout Could Raise Airfares by 5 percent

Daniel Orn, flickr

European flights have resumed after the volcanic ash crisis that shutdown northern Europe air travel for almost a week, but the economic fallout is just beginning and may hit passengers with pricy airfares as early as this summer.

The eruption of Iceland's Eyjafjallajökull volcano on April 14th spurred a near week-long disruption of flights in and out of the ash plume's path over northern Europe, stranding millions of passengers abroad and resulting in a loss of $3.3 billion for the airline industry.

Airfares could rise by 5.2 percent this year due the loss in revenue caused by the natural disaster, according to a report by the UK's Centre for Economics and Business Research. That would raise the average cost of a flight from London to New York by about $50.

Two thirds of the $3.3 billion lost during the volcanic disruption comes at the expense of European airlines, which the report predicts may lead to "an increase in airfares as the airlines try to mitigate the impact on their already tight profit margins." The European Union has pledged substantial aid for airlines affected by the disruption, however it is yet to be seen how this will affect the industry's bottom line.

The volcanic ash crisis isn't the only reason for the price increase. Fuel costs have skyrocketed by 74 percent in the first quarter of 2010, and the slow-but-steady economic rebound has put more demand on airlines as more travelers return to the skies. If this economic forecast is correct, the loss in revenue coupled with rising oil prices and inflation will raise ticket prices by a total of 11 percent by 2012, which averages out to a significantly higher rate than the annual 2.83 percent seen over the past six years.
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