Further volcanic ash disruption likely: Analyst

Exclusive Analysis issued a judgment on the disruption caused by the volcanic ash.

The incident assessment is given in full below:

Despite pressure to resume air traffic, European governments are unlikely to risk compromising safety, making further reactive restrictions likely.

Key Judgement

While the overall economic impact of the Volcanic ash cloud affecting European travel is likely to only modestly affect the global economy, specific industries like perishable exports and regional airlines would face significant adverse economic conditions if the current situation continues beyond the week. This would result in the need for substantial government support. The growing backlash against regulators will likely force future governments to take a softer line in closing national airspace due to natural or human disasters, such as terrorist attacks, global pandemics or satellite failure, though not to the extent that safety would be jeopardised.

Event Summary

Due to an improved environment and pressure from regional carriers, regulators are likely to open their airspace within the week.

Since closing large parts of European airspace on 15 April, airlines and businesses have lost $ billions in lost revenue and costs incurred from cancelled flights. National agencies, such as the National Air Traffic Services (NATS), have the responsibility to close their airspace in reaction to security and safety of aircraft and passengers. This decision is taken in conjunction with meteorologists and other scientists, but not, initially, the airlines, who have a vested interest to keep aircraft flying for as long as possible. Over the past day, it appears that the amount of ash entering the atmosphere has substantially reduced, which would allow for some airports to begin operating in the UK as early as tomorrow. However, there is a significant risk of an eruption today by the neighbouring Heckla volcano eading to renewed restrictions. There are also significant risks of further eruptions by either Eyjafjallajoekull (the last eruption lasted for over a year) or its other neighbour Katla, which is significantly larger.

Analysis

Future coordination by government agencies and fear of the impending economic impact will likely reduce airspace downtimes, but they will not eliminate them.

While it is highly unlikely that officials would reopen airspace unless they were confident that planes could fly safely, pressure by airlines likely influenced the decision to re-open airspace despite lingering ash clouds. Indeed, there have been loud complaints from European carriers for the excessive closure of international airspace. Although we expect authorities to allow for more flexible regional delineation within countries to focus bans on smaller areas, it is unlikely that safety concerns will be trumped by economic pressure by airlines. Fear of a public backlash in the event of a disaster resulting from an early lifting of airspace restrictions likely means that any significant increase in the density of the volcanic cloud or incident of aircraft failure would lead to reinstated blanket restrictions. Within the past days, a military aircraft from the Finnish Air Force suffered extensive damage to its engines while entering affected areas, although test flights by commercial airlines BA, Lufthansa and KLM have reported no problems.

It is also likely that coordination and communication between national agencies governing airspace safety as well as transport ministers will be improved following the criticism by airlines over this incident. However, we would expect this coordination to be most noticeable in the event of very similar incidents whereas crises involving different expert agencies and departments that have not yet been tested for emergency response would very likely be slow off the ground.

Airlines are likely to request financial compensation for losses incurred due to the closure of airspace; European governments are more likely to award compensation to national airlines and privatised former national airlines as well as large carriers.

Airlines officials estimated that global losses resulting from cancellation of flights number some $200 million per day. On 18 April, a spokesman for European airports association ACI Europe stated that airports had also lost $184 million since the beginning of airspace closure on Wednesday last week. European airlines have been especially hit, with losses upwards of $20 million a day for some carriers. Other international airlines, like those in the US and Middle East, have also suffered, as many of them have offered free rebooking and have provided hotel rooms and food to stranded travellers. For example, Emirates claims it is losing $10 million daily to offer such amenities. Airlines are likely to seek compensation from national governments or regional entities, specifically the European Solidarity Fund for European carriers.

Effects on cargo has been limited to this point, but would be severely affected if future closures occur.

Air cargo disruption has been extensive for carriers such as DHL, UPS and FedEx, who have largely ceased their transatlantic freight transport. However, if operations resume within the next few days, overall costs will be limited. In the meantime, many cargo companies within Europe have begun utilising rail and road transport route alternatives in order to move parcels and goods. Switching to sea cargo will become an option for non-time sensitive deliveries, but firms are likely to wait for a few more days before rebooking by sea.

The largest industries affected have been perishable items, such as roses, fruits and vegetables. For example, Kenya's flower industry, which amounts to nearly 20% of all imports, has lost an estimated $3 million daily and temporarily laid off 5,000 workers due to flight cancellations. Shipping of microchips and mail has also been stopped. Medicines and pharmaceutical supplies sent from Europe have seen extensive delays, but most of these are stockpiled and resultant shortages are unlikely in the event that airspace is reopened within the next two to three weeks.