TT. Tui Travel

Europe's largest tour operator TUI Travel Group PLC (TT.LN) said Monday the disruption caused by Iceland's volcanic ash has cost it GBP20 million so far, and will cost between GBP5-GBP6 million a day for as long European flights stay grounded.

TUI Travel, whose brands include Thomson, First Choice and Airtours, said that even though the disruption has come during a period of low holiday activity, it would still have a financial impact.

Ash from the Eyjafjallajokul volcano in Iceland, which has been erupting since early last week, has grounded planes across Europe. U.K. airspace will remain closed until at least midnight Monday, officials said, and Italy's civil aviation authority said airspace in northern Italy will stay closed until 0600 GMT Tuesday.

"Another year, another crisis for the travel industry," said KBC Peel Hunt analyst Nick Batram. "Clearly scenes of grounded aircraft are not what the tour operators want as we edge closer to late booking season."

Batram expects customers to hold back on booking their holidays given the uncertainty. "This is a real risk that didn't exist two weeks ago," he said.

The news hit TUI Travel's shares. At 0850 GMT, they were down 8 pence, or 3.7%, at 284 pence.

Batram says investors will likely lock in some short-term profits after a strong recent run in the share price but keeps his hold rating on medium-term fundamentals. The shares are up more than 10% in the year to date.

Shares of rival tour operator Thomas Cook Group PLC (TCG.LN) also fell in morning trade and were down 8 pence 3.1% at 253 pence. Thomas Cook declined to comment on its own situation.

In the U.K., 90% of the U.K.-listed travel group's customers whose flights have been canceled had rebooked their holiday for a later date, it said.

TUI has about 100,000 customers who have been unable to travel home since Northern Europe's airspace began shutting down on April 15.

"The welfare of our customers is paramount and the group is providing appropriate assistance to all those in resorts whose return home has been delayed," it said.

The company said in a separate announcement it was using coaches and cruise ships to bring back up to 5,000 customers to the U.K. from Spain.

"The decision to repatriate customers has been taken due to the continuous nature of this closure in air space," it said, adding that everything possible was being done to get the rest of the company's 40,000 customers currently overseas home. At present, they are staying in hotels while more coaches are sourced.

TUI added that it was working with other tour operators and airlines to encourage the resumption of flights as soon as possible.

-By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; michael.carolan@dowjones.com

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