The Economic Impact of the Iceland Volcano Ash Cloud

April 23, 2010
Scientists say the output of the volcano beneath the Eyjafjallajokull glacier in Iceland is now "insignificant," and so flights have resumed operating in Europe. That's welcome news for millions of stranded travelers and as they make their way (finally) ...

Scientists say the output of the volcano beneath the Eyjafjallajokull glacier in Iceland is now "insignificant," and so flights have resumed operating in Europe.

That's welcome news for millions of stranded travelers and as they make their way (finally) to their destinations, it's going to be interesting to see attention shift from the human impact to calculations of the economic impact of the vexing ash plume.

For instance, initial numbers from the International Air Transport Association estimate that the Icelandic volcano crisis cost airlines more than $1.7 billion in lost revenue through Tuesday. Between Saturday and Monday, when disruptions were greatest, IATA said lost revenues reached $400 million each day, CNN reports.

Of course, the overall impact to business will be even greater, as global supply chains were disrupted in ways we are only starting to understand. The U.S. State Department is predicting that the economic damage will likely be "profound," with particular sectors of the economy being the hardest hit. Some I've heard are even speculating that disruptions caused by the volcano could significantly set back the fragile global economic recovery, which is only just starting to get a foothold.

Plus, as Jan Husdal predicts in a post earlier this week, a wide range of other business stories are likely to make headlines over the next few days, as well.

"I do expect to hear demands for government actions (i.e. bailouts) soon," Husdal says. "And, I do expect to see businesses and perhaps also insurance companies suing civil aviation authorities for closing too many airports, causing them to lose money or even go out of business."

In fact, just yesterday, Reuters reported that some lawyers believe European airlines could sue government agencies for grounding air traffic if they are not compensated for losses by their own countries.

What's the "take home" message here? For me, it's this: Stay tuned. While it's certainly good news that flights have resumed, there certainly seems to be little doubt that, at least initially, it's going to be a very bumpy ride

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