Volcano ash cloud halts travel

Ash cloud from volcano in Iceland

By now you must have heard about the volcano that erupted and sent a massive ash cloud over Europe that has caused many flights to be cancelled. The disruption stranded thousands of travelers and prevented thousands of flights from taking the airways. According to the International Air Transport Association, the airline industry is losing well over $200 million each day that this cloud hangs over European airspace.

Moreover, business between Europe and North America has been made very difficult due to cargo planes being among those flights that are cancelled. Every day there are about 337 flights between the U.S. and Europe but on Friday, 280 of those flights were cancelled. That number is only American based airlines and does not include European carriers which may come close to doubling that total. This event is the largest disruption in air travel since September 11th, so that should give you some perspective of how large the scale of this is.

The true cost to the global economy will only be properly measured after this is over since no one knows when that will happen. However, if you take the $200 million per day loss from the airline industry and combine that with major airport closures and all other businesses that are related to the air travel industry like tourism then the cost will be huge. Add to that the loss of business from companies that have nothing to do with this industry but that import and/or export products to and from Europe by air and the cost will likely be in the multiple billions of dollars, perhaps tens of billions or more.

As with all big events, this one has its share of opportunities for business. From an institutional viewpoint, it is likely that millions of new dollars will be invested in researching these ash clouds and what can be done to predict their path and how to maneuver planes through them. Perhaps planes can be fitted with some piece of equipment that will prevent the ash from freezing up in the engine causing it to seize. Also, there will be opportunities for businesses in the insurance industry to perhaps create insurance products for companies in case this specific problem arises again in the future. Another potential opportunity is to create a hedging investment product around it. It can be traded as a futures contract just like the ones that bet on the price of cocoa or the weather.

If you really think about what new opportunities this event may have opened, then it is possible that you would be able find one in a multitude of industries and perhaps it can be a nice addition to a company’s product or service offering.