The fallout from the Icelandic volcano is likely to have a devastating impact on the aviation industry, analysts have warned.

With Gatwick reporting losses of £1 million a day, airlines and related businesses are losing millions more and there are fears many will not survive.

Unions were locked in discussions at the airport all day yesterday, discussing how staff and management could work together to minimise the disruption, which is expected to continue for the rest of the week.

Among the options were workers choosing to take annual leave or restructuring their shifts to get back hours they have lost.

Ian McCulloch, regional industrial officer for Unite, which has about 6,000 members in the 27,000-strong workforce at Gatwick, said talks had gone well so far. Among the workers affected are baggage handlers, cleaners and security staff.

Mr McCulloch said: “There have been no disagreements. We have a good working relationship at Gatwick and there has only been two serious disputes in the past ten years.”

Alpha Inflight Catering is reported to have said staff could either take annual leave or work for a standby rate of £20 a day.

Mr McCulloch said the offer would be discussed today. While he does not expect any immediate job losses at the airport, he is concerned about what will happen after the summer peak period.

He said: “Workers will suffer the effects of this for a long time.

“We saw after the Sars crisis and 9/11 that employers attempt to recoup their losses by imposing pay freezes and changing terms and conditions.”

A spokesman for Gatwick estimated the crisis had cost the European aviation industry £1 billion since it began on Thursday morning.

The airport remained closed yesterday and an update was expected at 1am this morning.

The spokesman added: “It has had a significant impact on us, the airlines and other businesses connected with the airport but our primary concern has to be the safety of our passengers.”

Shares in aviation-related companies fell yesterday as BA admitted daily losses of between £15 million and £20 million a day, and tour operator TUI Travel said the disruption had cost it £20 million so far.

Analyst Alan Harris, of Charles Stanley Stockbrokers, said the impact could be “catastrophic” and that the crisis could not have come at a worse time for the industry as it tried to bounce back from the recession.

Mr Harris said: “This is likely to lead to further consolidation, and some smaller carriers will go under.

There will be mergers, which will have an impact on staffing levels.”

The continuing disruption led to a scathing attack from the International Air Transport Association, the airlines’ trade body, on how governments across Europe had responded.

Director-general Giovanni Bisignani said: “This is a European embarrassment and a European mess.

“It took five days to organise a conference call with the ministers of transport.”

Several airlines successfully tested the skies with weekend flights without passengers, leading to claims that governments had been over-cautious.

The Gatwick spokesman added: “We are working with airlines so that, once the restrictions are lifted, we can get the airport back to normal as quickly as possible.”