Much of the focus of the reporting of the recent volcanic activity in Iceland has been on the many thousands of travellers who remain stranded, even after planes began to take off and overfly the UK and parts of Europe on 20 April 2010. Though the human stories are eminently newsworthy, there are other elements worth reporting – most notably, the potential economic impacts of the eruption and the ash cloud.
The Economic Impacts – the Losers
The big losers are the airlines. Already suffering from a worldwide downturn, and, in the case of British Airways, the threat of strike action by the crew, the enforced grounding of thousands of flights has not only stopped the airlines' revenue stream but has incurred extra costs in terms of providing accommodation and meals for passengers where such action is required.
In an ongoing situation it is clearly impossible to produce accurate figures, but estimates made in the early stages of the situation are revealing. The International Air Transport Association (IATA) has been quoted as saying that carriers are losing over $200m a day – putting the total figure at the time of writing (April 20th) at over $1.2bn, while British Airways has estimated losses at roughly $8-10m daily.
As the crisis goes on and the airlines continue to lose revenue, accommodate and reroute passengers and pay staff who are temporarily unproductive, the total impact in terms of cost and financial problems will only increase, and may turn out to be even greater than that caused by the 9/11 terrorist attacks.
Nor are airlines the only losers. The European tourist industry, depending as it does on visitors from Britain and the rest of Europe whose flights are unable to take off, is also at risk, with revenue falling just as the summer season begins. Reports from Cyprus put potential losses to the tourist industry there as $15m, although elsewhere they may be less.
Other sectors are also suffering. The import of fruit, flowers and vegetables to European markets from outwith the continent depends on the airlines and has effectively been halted, leaving produce to go to waste – and thus spreading the impact of the disruption beyond those areas directly affected. In other sectors, companies which rely on air freight for parts are unable to access them.
The overall negative impact of this crisis on the economy, locally and nationally, is significant and increasing. Manchester’s Chamber of Commerce estimated a loss to the city of £41.5m up to Tuesday 20 April; and as each sector suffers, the wider economy suffers as well. Even when flights resume, there will be a period of readjustment as people, planes and freight struggle to get where they need to be.
The Economic Impacts – The Winners
As long as the problems for the airline industry continue, the demand for land- and sea-based methods of transport across Europe will be high. Eurostar reported over 50,000 extra passengers during the first weekend of the disruption and national and international rail services were fully booked, with many putting on additional services, while many ferry services were also fully booked.
Nor is it just public transport which is responding to the crisis with additional services. Car and coach hire and taxi firms are also benefitting as travellers try their hardest to get home, many incurring substantial costs as they do so. Some companies are accused of profiteering – an allegation levelled not just at transport but at accommodation providers as they increase prices in and attempt to offset losses.
Overall Economic Impact
The ash cloud is certainly seriously bad news for the airline industry; in terms of overall impact, it is more difficult to assess. While some consider that the short term the impact is likely to be limited, the continuation of the eruption and its output of ash could extend the problems not just for the airlines but for the European tourism industry as well. And one thing is certain - the longer the situation perists, the worse the impacts will be.
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