SCENARIOS-Potential scenarios for volcano gas cloud crisis

By Peter Apps

LONDON, April 18 (BestGrowthStock) – The economic impact of air
travel disruption from a volcanic cloud over Europe depends
almost entirely on how long it lasts — something even experts
say they cannot predict.

Below are several scenarios for how events could pan out.

CLOUD CLEARS SWIFTLY

The volcano could cease erupting, simply stop emitting ash,
winds could shift away from Europe or the gas cloud could be
dispersed unexpectedly quickly — although so far none of these
shows any signs of happening.

Airlines and air freight companies would immediately
scramble to make up for lost time, repatriate and relocate
passengers, aircraft and cargo.

— Airlines would still have lost some $200 million a day
during the shutdown, the International Air Transport Association
says. Airline stocks would likely still fall on Monday as
markets took into account losses over the weekend, which were
not factored in on Friday.

— Even if the cloud clears, some travel will still be
cancelled in the coming days. Some firms are asking employees to
cancel non-essential European flights over the next 7-10 days.

— Airlines might show greater interest in taking out
cancellation insurance. German insurer Munich Re (MUVGn.DE: ) told
Reuters on Friday it could offer such insurance easily if recent
events produced the demand.

CLOUD CLEARS, ERUPTION CONTINUES

Experts warn that as long as the eruption continues, the
risk remains that a renewed outflow of ash or certain wind
patterns could produce the same effect again in the coming
months.

This time, airlines would be less taken aback but there
would still be little they could do to prepare. The threat of a
renewed shutdown might deter both business and leisure
travellers from booking flights, holidays and hotels, hitting
the industry even if the cloud itself never returned.

— Airline industry stocks could underperform as markets
factor in a risk premium. Rail, road, sea cargo and
teleconference firms could see an increase in demand.

— Firms might take on additional stocks to reduce their
reliance on “just-in-time” resupply by air cargo.

— Any return of the cloud would again hit airline and
travel stocks as well as potentially undermining regional
growth.

— Much would depend on whether the current eruption
triggers Iceland’s nearby and much larger Katla volcano, further
increasing the potential impact.

CLOUD REMAINS, EUROPE REMAINS SHUT DOWN

If the cloud remains stubbornly over Europe for a sustained
period of time, perhaps weeks or longer, the travel sector would
take a serious hit. Wider industries would also be affected from
high-tech manufacturing to supermarkets and event organisers.

— This would be devastating news for the airline sector,
possibly driving some of the weakest operators to the wall.

— Overall European growth might be affected, slowing the
recovery from recession. Already heavily indebted governments
would struggle to find the funds for support programmes. Europe
might lag further behind the rest of the world in the global
recovery.

— Teleconference, shipping, rail and road transport
operators would benefit. So would airports just outside the
cloud, suddenly in great demand from airlines and shipping firms
as new hubs. That could benefit countries along the edge of the
cloud including Ukraine, Turkey, as well as Portugal, Italy,
Greece and Spain — the euro zone fringe economies worst hit by
the financial crisis. Britain’s Royal Mail is already shipping
and trucking airmail to the United States to Spain for onward
flights.

— Western military resupply flights to Afghanistan would be
heavily affected. Western European troop contributors would
become entirely dependent on the United States for supplies and
medical evacuation flights. U.S. forces would also be heavily
affected if they could no longer use their logistics and medical
centre in Ramstein, Germany. This comes days after an uprising
in Kyrgyzstan ushered in a pro-Russian government that may want
the U.S. to vacate its Manas airbase there, another key hub.

— Major international meetings may have to be cancelled,
rescheduled or simply go ahead without senior European
policymakers. That might further weaken Europe’s geopolitical
relevance at a time when it is already threatened by the rise of
emerging economies and internal differences over dealing with
the Greek debt crisis.

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(Editing by Mark Trevelyan)

SCENARIOS-Potential scenarios for volcano gas cloud crisis