The ash cloud's cost to business

It’s now well over a month since Iceland’s Eyjafjallajokull volcano eruption forced most countries in northern Europe to close their airspace in what has become Europe’s biggest shutdown since World War II. A period of increased seismic activity began at the end of 2009 but it wasn’t until April 14 that the volcano erupted creating an ash cloud that has since wreaked havoc for travellers and businesses across the globe.

“For an industry that lost €7.6 billion last year and was forecast to lose a further €2.3 billion in 2010, this crisis is devastating.”
-Giovanni Bisignani, CEO IATA

Airlines have undoubtedly been hardest hit by the crisis with 100,000 flights being cancelled between April 15 and April 20 alone at a cost of €1.4 billion. Given the fact that many airlines are still being forced to ground planes as the ash cloud moves across European airspace, this figure is set to rise. When disruptions were at their worst during that week in April, the International Air Transport Association claimed that lost revenues reached €325 million a day.

Airlines were already reeling from the effects of the recession, so the disruption couldn’t have come at a worse time. “For an industry that lost €7.6 billion last year and was forecast to lose a further €2.3 billion in 2010, this crisis is devastating. It is hitting hardest where the carriers are in the most difficult financial situation. Europe’s carriers were already expected to lose €1.8 billion this year – the largest in the industry,” says Giovanni Bisignani, IATA’s Director General and CEO.

The widespread airport closures of April that saw most European airports closed for days at a time seem to have subsided, but when the wind direction changes the cloud brings renewed disruptions to specific airports resulting in lengthy detours to circumnavigate the affected airspace. And these diversions don’t come cheap – two hours of jet fuel to divert to another airport can cost anywhere between €5000 and €8000.

It is hoped that recent changes to ash cloud air safety rules will allow more flights to operate as the buffer zone – 60 nautical miles (69 miles) between areas of heavy ash concentration, where it remains unsafe to fly, and areas in which there are small levels of ash, deemed safe by aircraft and engine manufacturers ¬– has been eliminated. This should hopefully alleviate the burden on both airlines and those planning to travel in the near future.

A recent survey by the NBTA Foundation – the research arm of the US National Business Travel Association (NBTA) – of corporate travel managers at major corporations across the globe found that the volcanic ash negatively impacted travel for 80 percent of companies, at an average cost of nearly €158,000 per affected company.

The closure of European air space also forced the cancellation of many business trips and meetings before they had even begun. NBTA found that NBTA-affiliated companies cancelled nearly 5600 scheduled corporate meetings and more than 165,000 total trips that had not yet taken place.

The effects of the air travel restrictions were felt across the board by most industries. There were devastating effects for the food industry with both retailers in the no-fly   zone and suppliers around the world unable to continue business as normal. Farmers in Kenya, for example, were forced to dump hundreds of tonnes of vegetables, fruit and flowers destined for the UK after cargo shipments in and out of the country were grounded.

Meanwhile restaurants, grocers and supermarkets across the region were left without countless products ¬– from beans and chillies, to mango, kumquats and physalis – that are grown on foreign soil and shipped to Europe.

Logistics were obviously hit hard by the crisis and many companies had to switch to road transport to make deliveries. Dutch mail group TNT stated that it was incurring higher costs as it was forced to switch to the road network to make its deliveries.

Travel companies too will feel a significant impact on their financial results this year. Thomas Cook, for example, has reported an €80 million loss due to the disruption – €23 million in lost revenue from travellers who decided not to rebook their holidays after being unable to fly and the remaining €57 million in costs related to supporting customers who were stranded and bringing them home.

However, for some businesses it would appear that even an ash cloud has a silver lining. Hotels witnessed an enormous spike in demand as stranded travellers sought accommodation until the airspace reopened and their flights were rescheduled. Car rental companies also saw a rise in demand as travellers looked to road travel for alternative routes around the continent. 
Passenger numbers also soared for Eurostar and continental ferries as stranded passengers attempted to find alternatives to air travel. The high-speed rail operator admitted that it was struggling to keep up with demand as tickets sold out in record time. Brittany Ferries and P&O Ferries also reported being inundated with enquiries.

The overwhelming desire is obviously that the disruption comes to an end so that we can all get back to business as usual. But this may be a little over optimistic. In the 1800s when Eyjafjallajokull erupted, it erupted for fourteen months. Furthermore, Scientists have said history has proven that when the Eyjafjallajokull volcano erupts, another Icelandic volcano named Katla follows – the only question is how soon.

As we have seen with all crises in the past, those businesses that come out on top are the ones who have built in a natural redundancy, durability and resilience capability into their operations. If anything, the ash cloud crisis has shown that risk mitigation, impact minimization and sustainable contingencies are more important than ever. If businesses hope to survive in a crisis landscape, investment in risk management, disaster recovery, business continuity and crisis management activities should be top of the priority list – especially with the looming threat of the eruption of Katla.

Facts

• The volcano's last eruption ran from 1821 to 1823
• 100,000 flights and 10 million travellers worldwide were grounded between April 15-20, 2010
• 250 million cubic metres of ash has been produced since the beginning of the eruption
• The IATA has estimated that April’s shutdown cost airlines €1.4 billion
• EU Transport Commissioner, Siim Kallas, estimates total cost of the volcanic ash cloud crisis to be €2.5 billion
• Ryanair was fined €3 million euros by Italy for failing to help stranded passengers
• At the worst, the crisis impacted 29% of global aviation and affected 1.2 million passengers a day
• Travel was affected by the volcanic ash at 80 percent of companies
• Two hours of jet fuel to divert to another airport can cost €5000-8000