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Icelandic Volcano Eruptions Disrupts European Air Traffic

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Icelandic Volcano Eruptions Disrupts European Air Traffic

Icelandic volcano eruption (Photo:AFP/Getty Images)

Updated May 23, 2011
Volcanic clouds and ash from the May 21 2011 eruption in Iceland threatened air traffic in Scotland, Ireland, France and other hubs in the northern EU. Even though the Grimsvotn volcanic eruption is bigger than last year's, it isn't as destructive economically. That's because the ash is not as dense, and disperses more easily.

Last year's volcanic eruption closed European airports for six days. As a result, airlines lost $200 million a day -- and they're not insured for this type of loss. However, if this year's eruption does affect air traffic, it will cause losses to more than just airlines. It threatens the travel industry, which contributes $1 trillion to the economy, as the summer vacation season is just starting up. Last year, the volcano costs the travel industry $5-10 billion a week.

Furthermore, 40% of the world's goods by value moves by air. Drug companies, time-sensitive high-tech imports and premium products such as fine Scotch whiskeys all sit on the tarmacs when airports are closed. The most severely affected are African exporters of fruit and flowers that quickly go bad if not shipped.

Severe Icelandic volcano eruptions hurt stock prices of European airlines, as well as other travel-related industries. It also impacts other shippers such as FedEx and UPS that rely on affected air hubs in Europe.

On the other hand, it helps land and sea shippers. If it lasts long enough, it could lower oil prices. The 2010 airport shutdown reduced demand for jet fuel by 2 million barrels a day.

Insurance financier Warren Buffett has said that natural disasters, such as tornadoes, hurricanes and earthquakes, represent a far greater threat to the economy than terrorism.(Source: "Economy Impact to Rise Sharply as Ash LingersReuters, April 19, 2010)

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