Now that much of the disruption resulting from the volcanic ash that spread from Iceland across Europe this month has eased, the aviation industry is assessing the financial ramifications and trying to learn lessons of science and preparedness. National air traffic control authorities and European regulators also have been defending decisions to close airspace and keep thousands of flights grounded during an eight-day stretch, while corporations, travel agencies and other travel suppliers assess the hit on productivity and travel costs.
"The volcanic event is a one-off and pretty unique. We were not prepared for it," said Kevin Morris, aviation and environment manager at ADS, a British aerospace management company, speaking during a 23 April webinar conducted by UBM Aviation. "The reaction was to keep the airspace safe."
Eurocontrol director of cooperative network design Bo Redeborn explained that authorities had neither specific rules addressing such an event nor updated information on which to take immediate action. "The rules and regulations needed to firmly decide on flying in ash are not as simple as one would think," he said. "A typical jet engine is not certified on the concentration of ash it could actually cope with. We had to derive this information from the engine manufacturers over the course of the first several days, and it was not until some of that data was available that some of the regulators felt confident that they would be able to approve flights."
But Redeborn said he was "impressed" by how quickly authorities made decisions once data became available. "The problem was the most obvious on Saturday (17 April) and by Monday evening we had agreed to a way forward," which included splitting European airspace into a no-fly zone, a limited-fly zone and an allowable fly zone, he explained. "Considering how badly prepared we were, everybody did an extraordinary job to resolve this problem with no impact on safety."
Already, European ATC officials are better equipped to handle such an event, webinar participants said. They pointed to a recognition that national authorities, European regulators, manufacturers and airlines need better coordination; a cross-industry understanding that streamlined crisis management is essential; and new testing by engine manufacturers to determine safe tolerance levels for volcanic ash.
"We are in a much better position than we were 10 days ago because we have scientifically based guidelines which are appropriate to such a scenario," said Alex Bristol, general manager for strategy and investment at NATS, which provides ATC services across the United Kingdom. "Now we have scientific evidence backed by empirical evidence as to why it is safe" to fly in certain ash-contaminated airspace.
After The Dust Settles
The speakers said much more work is needed to adequately prepare for volcanic eruptions or other events with widespread ATC ramifications, even if they are rarities. "At Eurocontrol, we will propose that we develop a specification to add some clarity," Redeborn explained. "What is a no-fly zone? Is it a restricted area? Is it a danger area? Is it a prohibited area? These could be clarified so we don't have to have those discussions in the middle of the problem."
NATS' Bristol highlighted the need for better coordination among various industry bodies. "What comes out of the interactions between government regulators, air traffic control providers and industry is that some of those relationships weren't quite working," he said. "Let's make that right in the future. This needs to be a very big intergovernmental exercise. The next event may not be a volcano but there will be something at some point and we need the wherewithal to tackle it very quickly in a far more proactive, integrated and coherent way than we were able to 10 days ago."
Morris of ADS said the industry should "not overact. Volcanoes have been around for some time, and we have been flying around them for some time." However, he suggested that flying through ash is an area "that needs a lot more research" and "perhaps a lot more funding. It is difficult to do risk assessment when you don't know what the risks are." He also said that use of unmanned aerial vehicles to measure ash concentrations around volcanic eruptions is "a fantastic idea."
Tallying The Costs
Companies polled by the NBTA Foundation on average had 160 travelers stranded by flight cancellations from volcanic ash, generating an average of $197,000 "in unexpected travel expenses." Based on 234 survey respondents, the research arm of the National Business Travel Association extrapolated that "NBTA-affiliated companies cancelled nearly 5,600 scheduled corporate meetings and more than 165,000 total trips that had not yet taken place."
According to an Association of Corporate Travel Executives poll, more than 70 percent of surveyed companies said flight disruptions had a moderate or severe impact on their travel programs. One-fifth described their programs as "slightly" impacted, while 8 percent indicated "not at all." Three-quarters said the added expense "generated by this travel disruption" would not cause their companies to cut travel during the remainder of 2010, while 22 percent said they were unsure and 8 percent said it would.
For the airlines, the volcanic eruption cost the world's airlines at least $1.7 billion, according to the International Air Transport Association. "At the worst, the crisis impacted 29 percent of global aviation and affected 1.2 million passengers a day," according to IATA director general Giovanni Bisignani. "The scale of the crisis eclipsed 9/11."
Some individual airlines quickly issued statements on the financial impact of seven or eight days of flight disruptions and asked the European and national authorities for compensation for airspace closures. British Airways, for example, estimated that lost passenger and freight revenue, along with "costs incurred on supporting passengers," totaled roughly £15 to £20 million (US$23 million to US$31 million) per day. Other daily loss projections included SEK90 million (US$13 million) at SAS, about €6 million (US$8 million) at Ryanair and €2 million (US$3 million) at Finnair.
U.S. carriers also reported daily revenue reductions of millions of dollars. "Of course it is too soon to estimate the total financial impact of this event but suffice it to say it was a very unwelcome development in the midst of a fragile recovery," according to American Airlines CFO Tom Horton.
"Given the high and inflexible cost basis of the [aviation] sector, the impact of the last eight days on cash flow will inevitably be a challenge that will require action," according to KPMG head of transport restructuring Justin Zatouroff, speaking on the UBM webinar. "I suspect there clearly will be a desire [among European airlines] to pass on the cost of all of this to passengers. The question will be if that is possible, given that not all airlines were impacted to the same degree."
Zatouroff addressed the complex issue of reimbursing passengers for flight cancellations. Assuming governments won't be responsible, he said, "the need to deal with the large number of claims that are presented and will need to be paid is going to have a major impact on [airline] management going forward. In the longer term, the impact of this on working capital will be real."
He also noted the challenges in aviation sector funding as it relates to risk and the ability to take on debt. "The key message for the aviation industry is to have the cash to deal with short-term shocks," Zatouroff said. He added that "the need for scale was emphasized by the last eight days. The ability to be a global airline and therefore to have Europe be a small portion of your turnover rather than the majority obviously will increase your ability to deal with these events, and this will perhaps be a driver for regulation change and the commercial appetite to create some of those global players."