You may not know how to say it but you probably remember it. In 2010, the Eyjafjallajokull volcano erupted causing worldwide disruption. Now, once again in 2011 another Icelandic volcano, Grimsvoetn, has erupted sending more ash in to the sky. The economic impact from volcanic ash can be high, but fortunately, Europe learned some valuable lessons from 2010.
TUTORIAL: The Airline Industry Handbook
The 2010 Eruption
The world knew about volcanoes but they weren't high on the disaster preparedness radar screen of world officials. Looking back, they should have been. Among the notable statistics, the airline industry lost $200 million each day for a total of $1.7 billion. More than 100,000 flights were cancelled over the course of eight days stranding more than 10 million passengers.
When commercial aircraft aren't permitted to fly, it affects more than just the millions of passengers who are stranded or their flights are cancelled. Take the jet fuel industry, for example. Each day in Europe the airline industry uses 1.17 million barrels of jet fuel. Some flights were added later on to causing demand to again rise but many flights were never rescheduled. To make it even worse, the extra supply of fuel that was left in inventory temporarily drove the price of fuel down leaving the fuel suppliers with less revenue from each barrel.
The flower industry was also affected. Kenyan growers, responsible for most of the imported flowers coming in to Europe, lost $2 million each day and have warehouses full of wilting flowers. Other industries affected were the insurance industry (from travel insurance), manufacturing plants who ran out of parts, and the pharmaceutical industry who has only a small window of time to ship drugs before they expire and become unusable. (For related reading, see Is That Airline Ready For Lift-Off?)
Again in 2011
Again in 2011, another Icelandic eruption affected Europe but this time they were prepared. Following the 2010 eruption, a sophisticated tracking station was installed in Iceland which provided European air authorities with valuable information. Possibly the most important piece of information is the type of ash being spewed. Low and sometimes medium density of ash are able to be flown through safely where high density is off limits. This tracking station allowed them to know this information much earlier.
They also learned that aircraft are able to fly through much more dense air than previously thought and as a result, European airline industry didn't have to completely shut down.
TUTORIAL: Economics Basics: Introduction
North American Impact
Of course we don't want to diminish the impact of such an event on our friends in Europe but in North America, we saw very little impact. In 2010, the volcanic ash never made it to American soil and only skirted the Canadian cost. The day that the ash reached Canada, flights were delayed but according to Canadian aviation officials, it was because of fog unrelated to the ash.
According to USA Today, in 2010, the volcanic ash caused an average of 310 flight cancellations per day from American airports. Although an impact for those affected, the impact on the North American aviation system was negligible. Other economic impacts as a result of flights not carrying goods out of Europe were negligible for the North American economies. (For related reading, see 4 Reasons Why Airlines Are Always Struggling.)
North American Volcano Impact
In 1980, the Mount St. Helens volcano erupted in Washington State and according to the U.S Geological survey, the total economic impact at that time was $1.1 billion. Although that's a substantial impact, compared to Hurricane Katrina, with a price tag of $110 billion, it is clear that the economic impact of volcanoes in North America has been small.
That may be more because of good timing rather than good planning. The largest active volcano in North America is an unlikely place in Yellowstone National Park. The crater top of Mount St. Helens is two square miles. The caldera, the part of the Yellowstone volcano equivalent to the crater top of Mount. St. Helens is 1,500 square miles across. If it were to erupt, it would cause millions of deaths, change weather patterns and cover most of the United States with an ash cloud that would shut down the economies of all North American nations for a significant amount of time. Some might call this an apocalyptic event.
The good news is that these eruptions have only taken place every 600,000 to 800,000 years, although the past three eruptions are not statistically significant to determine exactly when the next eruption will occur. Volcanologists estimate that we will have about 100 years of warning signs before any eruption in any case. (For related reading, see Dead Airlines And What Killed Them.)
The Bottom Line
The European nations were severely impacted by the volcanic ash and because we live in a global economy, any disruption to world economies will cause shock waves to echo through all nations but the effects on North American countries have been negligible. As the European Union continues to learn and make disaster plans, future impacts should be even less and North American nations who aren't used to dealing with volcanic eruptions will hopefully have plans in place after the effects seen in Europe. (For related reading, see 7 Air Travel Perks That Used To Be Free.)
EconomicsAfter the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
EconomicsWe share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
EconomicsFor every major world event, there are those who stand to lose and those who stand to gain. A look at the short, medium, and long-term impacts of the Paris attacks.
Investing NewsThe horrific terror attacks in Paris will have a ripple effect on comsumer spending and tourism.
Investing NewsBritain is edging towards leaving the EU according to polls that show the UK's future membership of the EU is uncertain.
InvestingA weaker euro is boosting German exports, which have led to a record trade surplus. Here are five German companies reaping the benefits.
EconomicsThe European Central Bank's quantitative easing program aims to save a heterogeneous Eurozone with liquidity for widespread investment.
InvestingThe Fed’s continued delay has repercussions for more than just the U.S. economy and markets. The ECB and the BoJ may support the case for stocks in Europe.
Investing BasicsClimate change will harm earth and its inhabitants in various ways, but certain industries will see increased profits as a result.
Mutual Funds & ETFsBelow is a brief overview of the countries which make up the Eurozone and how their economy and markets have been performing in order to put things in perspective for an investor.
During the European debt crisis, several countries in the Eurozone were faced with high structural deficits, a slowing economy ... Read Full Answer >>
Regulatory authorities in the European Union (EU) are suspicious of wholly owned subsidiaries, or at least their relationship ... Read Full Answer >>
Countries other than the United States that have risk-free interest rates are Canada, the European Union, Japan, the United ... Read Full Answer >>
A value-added tax (VAT) in the European Union functions in much the same way as a VAT in any other legal jurisdiction. VAT ... Read Full Answer >>
Market indicators can be used by technical analysts to measure the movements of major exchanges or indexes. Almost all market ... Read Full Answer >>
Laws and regulations on delivery duty paid (DDP) vary between countries, but they are overall very similar. Regulations regarding ... Read Full Answer >>