Airspace closure extended until Sunday morning

All Ryanair UK flights and BA shorthaul flights cancelled until Monday.

Flights from London and much of the rest of Britain will remain grounded until tomorrow morning because of the cloud of volcanic ash looming over northern Europe, air traffic controllers confirmed.

The ash cloud created by an erupting volcano in Iceland is "moving around and changing shape", the air traffic control company Nats said. If it "moves sufficiently", some domestic flights may be able to take off from Scotland and Northern Ireland today.

British Airways decided last night that all its flights in and out of London today will be grounded and its shorthaul flights cancelled until Monday. A spokeswoman for the airline said the cancellation covered all flights to and from European destinations as well as domestic services. A decision on long-haul flights would be made later.

Tens of thousands of Ryanair passengers had their travel plans wrecked this weekend after Europe's biggest airline cancelled all flights out of Britain, Ireland and other countries until Monday afternoon. Ryanair's chief executive, Michael O'Leary, said he would not jeopardise safety and wanted to allow passengers a chance to seek refunds or rebook flights a few days ahead, rather than book 24 hours in advance in the vain hope that the cloud would shift dramatically.

A Nats statement this morning read: "Following the latest information from the Met Office, Nats advises that restrictions across UK controlled airspace have been extended until at least 1900 today and that restrictions to Scottish and Manchester airspace have been reapplied until the same time."

"Current forecasts show that the situation is worsening throughout Saturday.

"We are continuing to look for windows of opportunity to handle individual flights in UK controlled airspace."

British travellers in Iceland were able to make a getaway home yesterday when the ash cloud shifted sufficiently for aircraft to fly to Scotland. More than 400 people arrived on the first two flights to land in Glasgow from Iceland, including children who had been on trips to see glaciers and volcanic rock formations.

For the second day running, English airspace remained almost entirely closed because of the risk that small particles from the ash cloud spewed from the Eyjafjallajökull volcano in Iceland on Wednesday would clog aircraft engines. At least 500,000 people are thought to have been prevented from boarding flights to and from Britain, stranding an estimated 100,000 Britons abroad. Major airlines such as British Airways or Lufthansa are estimated to be losing £10m a day while their planes are grounded.

To the fury of consumer groups, many insurers are refusing to pay for passengers' extra accommodation and travel costs, on the basis that the volcanic eruption was an unforeseeable "act of God". Britain's biggest insurer, Aviva, said that scheduled departures delayed by the volcanic ash cloud would not normally be covered by travel insurance "as it is not a normal insurable peril", but said it would consider offering goodwill payments. AXA said standard policies would not pay out for delays.

Train companies laid on extra services to Scotland, with Eurostar and ferry companies also expanding their capacities. Eurostar reported that its 58 services were full, and P&O Ferries said it was unable to accept any further foot-passenger bookings at the weekend due to an unprecedented demand.

Although the ash is not thought to pose a general danger, the Health Protection Agency advised people with respiratory conditions such as chronic bronchitis, emphysema and asthma to ensure they carry any inhalers or other medications with them.

KPMG travel expert Dr Ashley Steel said: "This is yet another dramatic and costly event for the global aviation industry which will have a significant impact on annual revenues of airlines in the UK and Europe."

Insurance firms 'in disarray' over disruption

Passengers

Travellers waiting to hear whether their flights will go ahead may be left out of pocket. Under EU legislation, those whose flights are cancelled are entitled to a refund or re-routing. In the case of re-routing, the airline should pay for meals and refreshments, hotel accommodation (if necessary), and transport between airport and accommodation. Extra compensation is unlikely because volcanic ash would be considered an "extraordinary circumstance".

Whether travel insurance policies pay out will depend on the small-print. The Association of British Insurers said yesterday there were no standard terms and conditions and advised individuals to check with their insurer. There is unlikely to be any payment for passengers who no longer wish to travel.

Britain's biggest insurer, Norwich Union, was considering its position. AXA said its standard policies would only "provide some cover" if passengers could not make their main international flight as a result of the "failure of other public transport", such as a connecting flight. A leading personal finance website complained insurers were in disarray. Bob Atkinson, travel expert at moneysupermarket.com said the reaction from many travel insurers was "extremely disappointing". "The industry really needs to get its act together...this is exactly the type of event that people buy insurance for."

Another knock for carriers

Airlines

Airlines are expected to lose hundreds of millions of pounds as a result of the disruption. Aviation expert John Strickland, of JLS Consulting, predicted the hardest hit would be British airlines based in the South East, such as BA, easyJet and Ryanair.

BA estimated it was losing £10m to £20m a day during its recent cabin crew strikes, Mr Strickland said, which was only a partial reduction in services, and the former national carrier is a fraction of the European aviation industry. Delays are likely to continue for several days as carriers repatriate jets stuck in cities around the world.

Airport retailers will also have lost large sums due to the absence of travellers with time and money to burn. Some of this revenue will return as passengers prowl again through airport lounges to rescheduled services.

But the airlines will never entirely make up for the days they have lost. Mr Strickland said: "It just illustrates how vulnerable the industry is to shocks. You always have the economy, but we keep on having other things that could not have been predicted in a business plan such as avian flu, swine flu and now this."

Losses for companies are unknown

Business

The lockdown of UK airspace has left a trail of cancelled sales trips, meetings and conferences.

At the Federation of Small Businesses, which has 200,000 members, spokesman Eric Beech said: "Some small businesses will be affected by the interruption in air travel. They may not be as large in terms of the number of employees but they do need to move around the UK and internationally."

He said he believed the cost would be lower than during the snowy weather in January, which stopped employees from getting to work. "We cannot quantify what the loss is likely to be," he said. "There are other means of transport internally, so I wouldn't have thought it would be as high as in January."

Some companies may save money if they use video conferencing rather than flying to communicate with clients or colleagues. Technology company Outsourcery boasted yesterday: "The travel difficulties will only further underline how being able to connect with your colleagues wherever they are means an increase in productivity."

Additional reporting by Independent staff