The airline industry Friday began counting the cost of the huge volcanic ash cloud that had closed air space across most of Europe and grounded planes across the world.

The Air Transport Association, or IATA, which represents some 230 airlines and 93% of scheduled international global air traffic, said that at current levels of disruption, its initial and conservative estimate of the financial impact on airlines is in excess of $200 million a day in lost revenue.

However, it said airlines would be hurt further as they will incur added costs for re-routing of aircraft, care for stranded passengers and aircraft at various ports.

A volcano under Iceland's Eyjafjallajokull glacier erupted Wednesday for the second time in a month, spewing clouds up to 35,000 feet into the air. Aircraft travel at altitudes up to 35,000 feet. Volcanic ash is a significant safety threat to aircraft, and the cloud has spread across one of the busiest travel and trade routes in the world, forcing the closure of many of the region's key gateways during Thursday and Friday, from Norway south to Switzerland. Particles reduce visibility, damage aircraft windshields and can cause engines to shut down.

The disruption was set to continue into the weekend and weather experts were unable to forecast when the problem would end.

European airlines were hard hit, with British Airways PLC (BAY.LN) grounding its entire fleet, and other airlines only able to operate out of airports in southern Europe. Airlines from other regions of the world were also hit as they were forced to cancel flights to the affected area.

The expected losses for the industry come as airlines across the world are only just starting to recover from the credit crisis and economic downturn. Many airlines had gone bust and other had seen profits slide or turn to huge losses as passenger numbers slid shraply and cargo volumes fell.

Prior to the eruption, IATA had forecast that the airline industry would incur a $2.8 billion loss in 2010, down from the $9.4 billion loss the industry suffered in 2009. It had trimmed its forecast for this year from $5.6 billion previously as emerging markets of Asia-Pacific and Latin America experienced a recovery in passenger numbers and cargo volumes.

Many airlines weren't prepared to say how much the disruption was costing them Friday.

However, Finnish airline Finnair (FIA1S.HE) said it had been forced to cancel 435 flights, affecting about 54,000 passengers, which was costing it about EUR2 million a day in lost revenue. Helsinki airport was set to be closed until at least Sunday at 1200 GMT.

Belgian carrier Brussels Airlines, meanwhile, expects the air travel disruption to cost it several hundreds of thousands of euros.

The cost to larger airlines like BA, Ryanair Holdings PLC (RYA.DB) or Deutsche Lufthansa AG (LHA.XE) is expected to be several millions of euros so far.

BA legal documents related to the recent strike held by the employees' union show that the company estimates the average cost of taking a single long-haul aircraft out of service for a day is about GBP174,000, while the cost of grounding the entire long-haul fleet for a day is roughly GBP13 million.

A BA spokeswoman said the airline doesn't yet have an official estimate on how much money it is losing from the closure of the airports. The airline has previously forecast a pretax loss of about GBP600 million for the fiscal year ended March 31, 2010.

-By Steve McGrath, Dow Jones Newswires; 44-20-7842-9284; steve.mcgrath@dowjones.com
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