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Impact of Volcanic Ash Cloud on Europe

19.04.2010 -

The volcanic ash cloud making much of northern Europe a no-fly zone has hurt the prices of airline stocks, paralyzed air cargo delivery and disrupted business and leisure travel.

But analysts expect the overall economic impact to be minor, since the disruption appears unlikely to last continuously over a long period.

How Long Will The Disruption Last?
This depends on how long the volcano under Iceland's Eyjafjallajokull glacier keeps erupting, whether it continues spewing ash, and whether winds carry the ash towards Europe.

The volcano's previous eruption lasted over a year, but changes in wind and weather patterns could disperse the ash; many analysts think the cloud will not linger over Europe for more than a few days at a time.

If the volcano does continue to erupt, occasional disruption will be possible over six months or more, experts say. Much will depend on whether Eyjafjallajokull triggers a new eruption from the nearby and larger Katla volcano, which has happened in the past. That could magnify the impact.

Countries are proving able to resume flights quite quickly when local conditions improve. But the cloud continues to drift south, affecting more
countries.

Overall Economic, Market Impact
Unless the cloud disrupts flights continuously for weeks, threatening factories' supply chains, economists do not think it will significantly slow Europe's shaky recovery from recession or affect second-quarter gross domestic product figures.

"The overall impact should be very limited even if the problem persists for a day or more...Just as people can't get into the UK, people can't get out," IHS Global Insight chief UK and European economist Howard Archer said in a research note.

"So the people stranded in the UK will have to find places to stay and eat, so they will be spending money here rather than abroad."

Business meetings have been cancelled across Europe as a result of staff being unable to attend, but analysts say they will largely be replaced with teleconferences or rearranged.

If extended disruption to air travel hits supply chains, factories will be able to reduce the damage by using sea, river or road cargo, or changing procurement plans.

Impact On Airlines
Around 17,000 flights were cancelled on Friday, with airspace closed across much of Europe.

Shares in Lufthansa, British Airways, Air Berlin, Air France-KLM, Iberia and Ryanair fell between 0.8 and 2.2%. Scandinavian airline SAS slid as much as 4%.

Transport analyst Douglas McNeill estimates flight stoppages could cost carriers such as BA and Lufthansa some $16 million a day each - considerably more than the $10 million a day lost by BA during a recent seven-day strike by cabin staff.

Fraport, which operates Germany's main airport in Frankfurt, says its initial estimate was for the ash to cost it between €2.5 million and €3 million per day.

Iceland's location means the eruption could prompt wider disruption to international flights.

"Iceland sits right on one of the key routes between Europe and the USA and...depending on meteorological conditions it could also affect flights from Europe to Asia, so there are two big international flows which could be affected by this," said John Strickland, director of air transport consultancy JLS Consulting.

"You can still get disruptions to other flights or have to take more circuitous routes, which adds costs and maybe even requires planes to land because they can't go on the direct route."

Alternative Transport
Eurostar, which runs trains between London and the European continent, said trains were operating at full capacity and it might lay on additional trains if necessary.

London taxi firm Addison Lee said it had taken requests for journeys to Paris, Milan, Zurich and Salzburg in Austria.

Air Cargo
Grounded air cargo flights have halted delivery of items such as microchips, flowers and mail. Europe's largest mail and express delivery company Deutsche Post said it was switching to road transport where possible.

Switching to sea cargo might be an option for longer deliveries, although not for perishables such as flowers, but shipping analysts said it would likely take at least several more days before firms started rebooking by sea.

Pharmaceutical supplies in particular are often transported by air, but experts said there were sufficient stocks so there should be no serious shortages for now.

Health Impact
The World Health Organization warns the dust could cause problems for those with breathing difficulties, though it has not yet assessed this particular eruption.

A Scottish expert on respiratory disease told Reuters that the low-toxicity ash falling on Britain was unlikely to do much harm as a very high exposure would be needed to have much effect on people.

Climate, Agricultural Impact
Scientists say the eruption does not seem to have produced enough dust or gas to alter the climate or impact agriculture, and should have no effect on global warming trends. A larger eruption from the Katla volcano might be a different matter.

For more pictures of the eruption from space, go here.

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