Weekly international investment round up to April 20, 2010
• Fallout from Icelandic volcano strikes the travel sector
• As air restrictions ease pressure for compensation will increase
Mark Lamb
The disruption caused by the Icelandic volcano eruption has not only caused unprecedented travel chaos throughout Europe but is set to have a higher economic impact on the travel sector than the 9/11 terror attacks.
After a brief lull, the Eyjafjallajokull volcano began spewing clouds of ash on April 14th grounding the majority of the 28,000 daily flights which travel through European airspace. Shares in airlines and travel firms have been badly hit by the disruption. British Airways shares were over 4% down to 227.30 pence in early Monday trading while German flag carrier Lufthansa had fallen 2.6% by close of business. They and all the other carries are desperate to get back into the skies as industry experts predict the travel trauma is collectively costing them all some 185 million euros per day, such figures are arrived at by taking the airlines sales over the last year and dividing it by 365 days. Also hit are tour operators such as TUI Travel whose share price fell to 283 pence after informing the city that it had lost 20 million pounds so far because of the ban while Thomas Cook shares also tumbled by 3.4% on similar estimates.
Airport operators such as BAA in the UK and ADP in France are also among the front-line service providers hit by the flight stoppages. BAA which manages London’s Heathrow, Europe’s busiest airport with around 180,000 passengers a day, generated a turnover of 1.97 billion pounds last year, or 5.5 million pounds per day. They receive fees made up of landing charges for each plane which arrives, rent from the retailers’ shops and revenues from adverts within the airport. Therefore, with each Heathrow passenger worth an average of almost 5 pounds, closed skies are bad news for BAA.
Even far off places such as Kenya are being affected. According to the Kenya Flower Council, 97% of all the country’s flower exports are sent to the EU. The closure of the European airspace is therefore preventing their produce reaching their key market placing at risk the livelihoods of 100,000 Kenyans.
As flight restrictions ease the pressure for compensation will increase. The recession, high oil prices and increased competition have placed enormous financial pressures on airlines. Without a financial bailout similar to that offered to the banks for some, the volcanic eruption may actually mean they bite the dust. UK Prime Minister Gordon Brown has said that the European Solidarity Fund, set-up to provide aid to EU members hit by natural disasters, may be a resource open for those businesses struck by the stoppages. He is also keen for the estimated 150,000 British citizens (and voters) who are stranded abroad to return to the UK as soon as possible. Having dumped some dodgy banking practices on northern Europe, Iceland’s dust cloud is now also reeking havoc! Along with so many other factors investors must now consider the possible environmental impact on their selected sector however, when the dust settles there will always be those who can find the silver lining and that could just be the real challenge of this particular cloud.
Mark Lamb is Head of the Life Dept. at Citadel Insurance plc which is authorized to carry on general and long term business of insurance under the Insurance Business Act, 1998 and is regulated by the MFSA. Contact by email; [email protected] Tel; 25579000. Website; www.citadelplc.com
This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision
