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By
Reuters
Published
Apr 20, 2010
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US business risks from volcano smolder

By
Reuters
Published
Apr 20, 2010


By Martinne Geller and Deepa Seetharaman

NEW YORK (Reuters) - U.S. sellers of everything from cosmetics to cruises to car rentals were scrambling for options after a tower of ash from an Icelandic volcano turned much of Europe into a no-fly zone.

Flights in and out of Europe have been grounded for five days, leaving hundreds of thousands of travelers stranded and scouring for alternative means of travel or accommodation.

The European Union reached a deal on Monday 19 April to gradually lift flight restrictions from Tuesday (20 April) morning, but it wasn't clear how quickly normal operations would be restored.

"If this continued, let's say for the next two weeks, then it would have a catastrophic effect on the industry," said Pat Kennedy, vice president of field operations in Europe for car rental company Hertz Global Holdings Inc.

The car-rental firm moved "thousands" of people over the weekend as business and leisure travelers sought to travel between northern and southern Europe in the wake of the volcanic ash.

But he said Hertz, which operates out of 78 major airports in Europe and depends heavily on airport traffic, had a "massive disruption" to its business on Monday 19 April because of cancellations and no-shows.

The turmoil also hurt sales at duty-free shops and hampered the way some companies ship their products.

HOTEL CALIFORNIA?

Starwood Hotels & Resorts Worldwide, Marriott International and Hilton Worldwide, owned by Blackstone Group LP, said cancellations from some guests were offset by others needing to stay longer.

European hotels were one beneficiary. Both room rates and occupancy rose, especially in hotels near airports, according to STR Global, a provider of hotel industry data.

Hotels near airports in Brussels saw a 137 percent jump in revenue per available room -- a measure of fiscal health. The same measure rose 369 percent for airport hotels in Frankfurt.

Guests stranded at Marriott's five-star Grosvenor House hotel in London are being treated to a movie night and free cleaning of their under garments, said a spokeswoman.

Starwood spokeswoman KC Kavanagh said the effect of the canceled flights on individual travel has been minimal.

"However, group or meetings business has suffered, and we've seen cancellations throughout Europe as well as the Middle East," she said in an e-mail. "The longer that flights are disrupted, the more we expect to see a negative impact on our business."

David Buda, executive vice president of corporate travel management company Tzell Travel Group, said many of his clients were frustrated by their lack of options.

Over the weekend, Buda sought to get some clients on the Queen Mary 2, a cruise liner operated by Carnival Corp's luxury Cunard Line, but the ship was fully booked.

Calls to Cunard's reservations center tripled over the weekend as stranded travelers attempted to book last minute trips across the Atlantic Ocean.

The wait list for Queen Mary's April 22 cruise from Southampton, England to New York includes more than 1,000 bookings, a Cunard spokesman said. A May 21 cruise returning to Southampton is also sold out.

"In a case like this, there's no recourse," Buda said. "Even the President wasn't able to get to Poland because of this -- that says something."

Meanwhile, Royal Caribbean Cruises Ltd canceled a launch party for its new Celebrity Eclipse ship planned for this week to send the vessel to Bilbao, Spain, where the company will pick up more than 2,000 stranded travelers, the company said Monday 19 April.

BIG ERUPTION, SMALL DISRUPTION

Grounded flights are hurting sales at airports' duty-free stores, which often make up a significant portion of revenue for companies selling cigarettes, cosmetics and liquor.

Stifel Nicolaus analyst Mark Astrachan said travel retail accounts for 20 percent of Estee Lauder's total operating profit while Europe, Middle East and Africa make up about 30 percent of total travel retail sales. He said it has not affected the company's results, so far.

"That said, we believe the greatest risk to Estee Lauder's earnings is that the volcanic eruption continues for an extended period of time," he said.

In terms of supply chain interruptions for retailers, the impact is minimal, since many European brands of goods are shipped by sea.

German fashion brand Hugo Boss AG said it expects to be delayed in showing its pre-spring collection to retailers such as Macy's Inc and Nordstrom Inc, but a U.S. spokesman said there would be no impact to stores since those clothes would not actually ship until the 2010 holiday season.

"This is not a very big shipment time," said Needham and Co analyst Christine Chen. "If it were October before the holidays it might have a bigger impact."

(Additional reporting by Alexandria Sage, Lisa Baertlein and Karen Jacobs, editing by Leslie Gevirtz)

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