SCENARIOS-Potential scenarios for volcano gas cloud crisis

LONDON, April 18 Sun Apr 18, 2010 7:04am EDT

LONDON, April 18 (Reuters) - The economic impact of air travel disruption from a volcanic cloud over Europe depends almost entirely on how long it lasts -- something even experts say they cannot predict.

Below are several scenarios for how events could pan out.

CLOUD CLEARS SWIFTLY

The volcano could cease erupting, simply stop emitting ash, winds could shift away from Europe or the gas cloud could be dispersed unexpectedly quickly -- although so far none of these shows any signs of happening.

Airlines and air freight companies would immediately scramble to make up for lost time, repatriate and relocate passengers, aircraft and cargo.

-- Airlines would still have lost some $200 million a day during the shutdown, the International Air Transport Association says. Airline stocks would likely still fall on Monday as markets took into account losses over the weekend, which were not factored in on Friday.

-- Even if the cloud clears, some travel will still be cancelled in the coming days. Some firms are asking employees to cancel non-essential European flights over the next 7-10 days.

-- Airlines might show greater interest in taking out cancellation insurance. German insurer Munich Re (MUVGn.DE) told Reuters on Friday it could offer such insurance easily if recent events produced the demand.

CLOUD CLEARS, ERUPTION CONTINUES

Experts warn that as long as the eruption continues, the risk remains that a renewed outflow of ash or certain wind patterns could produce the same effect again in the coming months.

This time, airlines would be less taken aback but there would still be little they could do to prepare. The threat of a renewed shutdown might deter both business and leisure travellers from booking flights, holidays and hotels, hitting the industry even if the cloud itself never returned.

-- Airline industry stocks could underperform as markets factor in a risk premium. Rail, road, sea cargo and teleconference firms could see an increase in demand.

-- Firms might take on additional stocks to reduce their reliance on "just-in-time" resupply by air cargo.

-- Any return of the cloud would again hit airline and travel stocks as well as potentially undermining regional growth.

-- Much would depend on whether the current eruption triggers Iceland's nearby and much larger Katla volcano, further increasing the potential impact.

CLOUD REMAINS, EUROPE REMAINS SHUT DOWN

If the cloud remains stubbornly over Europe for a sustained period of time, perhaps weeks or longer, the travel sector would take a serious hit. Wider industries would also be affected from high-tech manufacturing to supermarkets and event organisers.

-- This would be devastating news for the airline sector, possibly driving some of the weakest operators to the wall.

-- Overall European growth might be affected, slowing the recovery from recession. Already heavily indebted governments would struggle to find the funds for support programmes. Europe might lag further behind the rest of the world in the global recovery.

-- Teleconference, shipping, rail and road transport operators would benefit. So would airports just outside the cloud, suddenly in great demand from airlines and shipping firms as new hubs. That could benefit countries along the edge of the cloud including Ukraine, Turkey, as well as Portugal, Italy, Greece and Spain -- the euro zone fringe economies worst hit by the financial crisis. Britain's Royal Mail is already shipping and trucking airmail to the United States to Spain for onward flights.

-- Western military resupply flights to Afghanistan would be heavily affected. Western European troop contributors would become entirely dependent on the United States for supplies and medical evacuation flights. U.S. forces would also be heavily affected if they could no longer use their logistics and medical centre in Ramstein, Germany. This comes days after an uprising in Kyrgyzstan ushered in a pro-Russian government that may want the U.S. to vacate its Manas airbase there, another key hub.

-- Major international meetings may have to be cancelled, rescheduled or simply go ahead without senior European policymakers. That might further weaken Europe's geopolitical relevance at a time when it is already threatened by the rise of emerging economies and internal differences over dealing with the Greek debt crisis.

(Editing by Mark Trevelyan)

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Comments (26)
ArcticLion wrote:
The volcano will continue active for at least a year. I suggest the affected nations get prepared with alternate transportation plans. It would be safer to travel by sea at this point, and maybe for a long time in the future. This makes man feel very small and powerless indeed.

Apr 18, 2010 9:55am EDT  --  Report as abuse
The volcano could do this for years and could get worse. Other volcano’s and massive earthquake may also well occur.

Apr 18, 2010 10:35am EDT  --  Report as abuse
publiusovid wrote:
This is something that has happened before and because we have lived in such a quiet time for centuries maybe we have lost our collective memory that would tell us the earth and therefore the universe is a violent place. We simply do not know what is next but a wonderful world with temperatures remaining at a comfortable average of 15C or 59F is actually unlikely. Enjoy while we can is the best we can even hope for.

Apr 18, 2010 11:30am EDT  --  Report as abuse
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