Volcanic Ash Clouds and the European Economy

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THE STUDY MAY 24, 2011

Volcanic Ash Clouds and the European Economy

Volcanic ash is back. No, not a weird new band. For the second year in a row, a volcano in Iceland is spewing ash into the sky. Last year, ash from Eyjafjallajökull (or, as newscasters called it, "the Iceland volcano," "the volcano in Iceland," and any other possible phrase that didn't involve pronouncing Eyjafjallajökull) closed airspace over twenty European countries. This year, the ash is coming not from Eyjafjallajökull, but from nearby Grímsvötn, again cancelling flights in England, Scotland, and Ireland. Airline executives are complaining that the dangers of the ash are overstated, and that flights should be allowed to continue. Their complaints beg the question: how bad was last year's ash cloud for the European airline industry?

Late last year, Mario Mazzocchi, Francesca Hansstein, and Maddalena Ragona, all of the University of Bologna, published an economic analysis of the effects of the volcanic ash. Looking at nine airlines, including Lufthansa, British Airways, and Air France, they found that the nine firms lost €3.3 billion the month that the volcanic ash disrupted service. Also, they found that alternatives to air travel did not uniformly gain from the aviation decline: None of the alternate businesses studied, including car rental and train services, saw a significant increase in market value. In fact, four of the six alternatives declined in value (though none significantly). Sadly, the study did not address the economic impact of lost airtime while trying to say/avoid saying Eyjafjallajökull.

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