Beyond the Bubble - 4/22

A volcano erupted last Wednesday in Iceland, causing a massive cloud of ash to be released into the atmosphere. Prevailing winds have carried this natural force south and east over Western Europe, forcing thousands of flights to and from European Union nations to be canceled. When flights do resume, airlines will be desperate to recoup their losses. Governments must take hold of these companies, which are now vital elements of international travel, to prevent ever increasing fees and higher prices.

For the past six days, hundreds of thousands of travelers have been affected by the phenomenon, and have searched for alternate routes on buses, trains and ferries. Airlines have also faced significant financial losses.

It has been reported that the crisis is costing the airline industry between $2-3 million every day. This has prompted senior airline officials to publicly demand that European governments intervene and provide financial aid to the struggling businesses.

“We are far enough into this crisis to express our dissatisfaction on how governments have managed it, with no risk assessment, no consultation and no leadership,” Director General and Chief Executive of the International Air Transport Association Giovanni Bisignani said.

The CEO of British Airways mirrored these sentiments, explaining that his company had approached the European Union seeking financial compensation for lost revenue. “There is a precedent for this to happen,” he said. “As compensation was paid after the closure of U.S. airspace following the terrorist events of 9/11, and clearly the impact of the current situation is more considerable.”

In an effort to avoid any further losses, and resume regular flight schedules as soon as possible, both Air France and Lufthansa have run test flights over Europe. These flights have been successful, and improving weather conditions prompted flights to be resumed on Monday.

In order to clear up the backlog of flights quickly, authorities identified three “caution zones” for air travel within European airspace. These zones are areas where it has been determined that the threat posed by the volcanic ash is less significant.

Once flights have resumed and the crisis is out of the eye of the media, one wonders whether or not the airlines will ever be able to receive any kind of financial support. Though we all love to loathe airlines, they provide an essential service for thousands of travelers.

Smaller airlines are most likely to be terminally damaged by these events, and if rendered bankrupt would seriously disrupt the equilibrium of the transportation market. A sector that already feels monopolized would continue along this path, with severe implications for the bottom line of the consumer. Flight ticket prices, as well as general baggage and overweight fees, would all be leveraged even more steeply against the buyer when competition between businesses decreases.
In the global village that we live in, the transportation industry is one that must be protected by governments. While I agree that there has been rampant inefficiency on the part of many airlines of late, the solution is not allowing the extermination of the little airline.