Fears of increase in flight prices

European airlines will be forced to return to the commercial insurance market for coverage of third party war and terrorism risks, after the European Commission yesterday urged governments to stop providing state-backed insurance from the end of October, which could mean an incresae in flight prices as airlines already have to cover the cost of extra security and higher airport taxes. The EU aviation industry was aghast at the move which put additional pressure on airline share prices, already cowering from a rising oil price and uncertainty over a new Gulf war. “(EU) states will agree not to continue (insurance) guarantees after October 31,” Commission spokesman Gilles Gantelet told a news briefing. Spanish charter airlines, which fought hard against the Spanish government over proposed airport tax increases at the start of the year, fear complications as the decision has come just as the airline industry in Europe appeared to be getting back to normal. The Commission, which polices fair competition in the 15-country bloc, said the market had returned to near normality, removing the need for state guarantees. “Current market conditions in Europe do not appear to be affected by the repercussions of the events of 11 September, 2001, with the same intensity as one year ago,” the Commission, which has conducted a study of the industry, said in a statement. Airlines were already starting to go back to the commercial market for cover, the Commission said, “indicating a return to an acceptable commercial aviation insurance system”. Industry reaction was swift and damning. “We are completely mystified about where the Commission gets its information,” said John Hume, policy director at European airports body ACI. Airports could only get cover for up to $150 million, compared with the $1 billion they used to insure, Hume said. The Association of European Airlines (AEA) said it was “disappointed” by the EU position, saying commercial insurance was inadequate and pointing to substantial state aid granted to U.S. airlines, along with insurance guarantees. Consumer associations expressed concerns yesterday that ultimately, as always, passengers will end up paying the difference.