More Volcanic Ash Compounds Airline Woes

Eyjafjallajokull Volcano eruption disrupts European air travel
Eyjafjallajokull Volcano eruption disrupts European air travel

The International Air Transport Association estimates that the prolonged shutdown of flights around Europe and across the Atlantic when the Eyjafjallajokull volcano in Iceland erupted in April was $1.7 billion. The only evidence of how long the eruptions will last is the period when the volcano was active, spewing ash into the atmosphere for two years, from 1821 to 1823. A similar pattern now could have a devastating effect on air travel and airline profits.

A new plume of ash has closed the Amsterdam airport, a big hub for Delta (DAL), Edinburgh, and London's Heathrow Airport, which is British Air's global hub. "Although the ash problem is not something that will last forever, we don't know when it's going to end," said Jay Ryu, a Hong Kong-based analyst at Mirae Asset Securities told Bloomberg. "This is delaying a recovery in the industry."

Airlines have been through two other major catastrophes recently. The first was when crude spiked to over $140 in mid-2008, and the second was the prolonged recession from which the industry has only recently recovered.

The ash problem compounds the trouble at BA, one of the world's largest airlines, which has recently been suffering a series of labor disputes that nearly shut it down two months ago.

The industry must gird itself for the prospects that these eruptions will go on periodically for months. If the finances of airlines based in Europe falter, they may turn to their governments for aid, as some began to do in April. However, governments throughout Europe have their own financial problems, lowering the odds of any meaningful bailouts. That may leave the airlines to fend for themselves.