Airline Stocks Dive on Volcanic Ash Fears

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Published May 23, 2011

| FOXBusiness

Shares of Europe’s top airlines fell on Monday upon worries that a new ash cloud from an Icelandic volcano could once again disrupt service.

While new arrangements have been implemented to curb the impact since last year’s volcanic ash  grounded flights and threatened public safety, the U.K. Civil Aviation Authority warned that disruption to the aviation industry still cannot be ruled out.

The current weather outlook suggests there is a possibility of ash reaching Scottish airspace starting on Tuesday, and reaching other parts of the U.K. and Ireland later this week, according to the CAA, which said it is “actively monitoring” the situation.

The volcano began erupting Saturday for the first time since 2004, sending smoke and steam miles into the air on Sunday and covering the country with a dark, tick layer of gray soot.

While the blast was more powerful than the one that temporarily shut the European aviation industry last year, scientists told the Associated Press that it is unlikely the impact on airlines will be as harsh given its ash’s coarseness that has sent it falling back to the Earth’s surface quicker than a year ago.

Still, Iceland’s main airport, Keflavik, remained closed on Monday morning while the country’s air traffic control operator ISAVIA established a 120 nautical mile no-fly zone around the volcano and cancelled all domestic flights.

In Monday trading, Germany’s Lufthansa , Air France-KLM, and International Airline Group, the parent of  British Airways and Iberia, plunged about 4%.

U.S. operators such as American Airlines (AMR), Southwest Airlines (LUV), Jet Blue (JBLU) and U.S. Airways (LCC) also traded lower on Monday morning, though that was likely a mix of volcanic fears, high oil costs and a new probe by the U.S. Justice Department.

American Airlines, U.S. Airways and Travelocity owner Sabre said on Monday that they had been contacted by the Justice Department as part of an investigation into whether third-party ticket-seller violated antitrust law, according to Reuters. No further details have been disclosed in the matter.

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