Icelandic Volcano spews huge shadow over economies

Sitting on this side of the Atlantic Ocean and following the news relating to the volcano in Iceland makes me feel rather detached from the economic chaos it is causing due to the cancellation of essentially all non urgent flights in the effected areas. After speaking to relatives in Europe the economic impact and general concern has revealed itself to have grown from an inconvenience to a general sense of panic surrounding the huge question of ‘how long will this last’. For an economy already showing the shakiest of recoveries events due to the eruption in Iceland could hardly be less timely. There is good news however in the last few hours as some of the air restrictions look to be lifted soon. Scottish airspace will open from 7am tomorrow morning. A few of the Northernmost airports in the UK will also be open from 7am and all mainland Scottish airports will be open. Forecasts released this afternoon infer that airspace above the rest of England (including London) and Wales may opened later tomorrow as well. France said earlier today that European countries can resume airline traffic in designated “caution zones” where the threat of ash is considered less dangerous. Further afield, the ash cloud is spreading towards the east coast of Canada, and has reportedly caused some flights out of Newfoundland to be canceled.

Today's map shows regions impacted by volcanic ash

So how do we quantify the cost of this remarkable (and still developing) event? As of yesterday more than 60,000 flights had been canceled as a result of the eruption beneath the Eyjafjallajokull glacier in Iceland. Estimates are that disruptions to air travel and freight are costing airlines around  $200 million per day and the offshoot impact may be more than a billion dollars per day to the nations impacted by the crisis. European politicians are already pondering whether the airlines should be bailed out from the unmanageable losses. It would be far too early for those decisions to be made but as of now there is no way of knowing whether the impact will diminish and end in the days ahead or if the volcano may be active for several more months. Certainly logic suggests if the problems runs into weeks rather than days then governments won’t sit back and idly watch major European airlines (and all the economic impact they represent) crumble into financial peril. European nations tied to the Euro were forecast for just 1% growth in GDP in 2010 and in under a week the impact of this eruption has left that number as seemingly optimistic according to experts. Even if airspace begins to open up tomorrow it is predicted that it will take up to a week or airlines to get back to ‘normal’ functional levels due to the twin logistics of aircraft being in the wrong place and hundreds of thousands of passengers stranded.

What makes the whole situation even more concerning is nobody can say how long the problems will last. Weather conditions can make the impact of the ash ebb and flow but at present nothing can be planned beyond a 48 hour window.  Not what you really want to hear but the last time that same volcano erupted in the early 1800’s the eruption continued for two years. Airlines are already under pressure this year due to labour disputes within Lufthansa and British Airways but at present the importance of those concerns have taken a back seat to simply becoming operational once again. Similarly the European governments have now twice delayed urgent talks to rescue the collapsed economy of Greece, due to the ash cloud economic meetings can’t be coordinated.

The global impact is also being felt as the days draw on. Air freight into and out of Northern Europe has ground to essentially nothing and already sold produce sits rotting in countries throughout the world as the normal option to fly the food to Europeans is not available. Currency markets have remained fairly static but the next 3-5 days will be watched with growing concern. Airlines in Asia and North America are also showing mounting concerns as each day leaves more freight and passengers stranded. We’ll be watching this situation unfold.