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Ash Wednesday: Icelandic Volcano Impact on Airlines Worse Than 9/11

By now there's no question you know that a volcanic eruption in Iceland last Wednesday continues to disrupt air travel as the ash cloud slowly meanders over Europe. For US-based carriers, the ash is an inconvenience that has had less of an earnings impact than a major U.S. snowstorm, but in Europe, the shutdown is a major financial catastrophe. With no end in sight and the impact already becoming larger than that of September 11, there may be panic at all European airlines as revenue dries up.

The International Air Transport Association (IATA) said last Friday that the grounding of flights was costing more than $200 million per day, conservatively. This was before the ash cloud crept further south and shut down airports in places like Switzerland and Northern Italy.

Put another way, there are about 22,000 flights touching Europe on a normal Saturday. More than 16,000 were canceled this past Saturday. On Friday, 18,000 out of 28,000 flights were canceled. This is a massive catastrophe for airlines.

Lufthansa canceled all flights worldwide over the weekend. British Airways hasn't operated in days, except for a couple of flights they managed to get to Scotland on Saturday morning. Airlines all over the continent are literally shut down for days at a time.

While the initial impact has been greater than September 11, that's where the comparison ends. Once the cloud lifts, demand will return to the same levels as before. That wasn't the case after 9/11. But how long will it take for the cloud to lift? There are already millions of people stranded all around the world trying to get home. Airlines, already hurting from the extra costs incurred, will now have to shell out even more money to reposition their fleets and crews and try to clear the backlog of stranded passengers, but they have no idea when they'll be allowed to do that.

It will be interesting to see how the European Union decides to tackle this problem. Financially weak carriers could see this be the final nail in their coffin without some sort of governmental aid. Just as we saw after September 11 in the US, I imagine that aid will be made available to those carriers who need it.

The most difficult part of this whole thing is that airlines don't know when they'll be able to get their planes back in the air again. The cloud could shift one way, as it did in Scotland, shutting down airports once again after they had been reopened. What's clear is that the damage is going to be widespread in the industry, and it's going to hurt the already fragile recovery efforts.

[Photo via Flickr user Howard Dickins]