Economic Impact of the Volcano Cloud Crisis

Paula Leal de Matos, EUROCONTROL

Belgrade, 7 September 2010

European Organisation for the Safety of Air Navigation

Contents

1. Impact on Air Traffic

2. Impact on Air Transport

3. Overall economy

4. Economic impact of being prepared for crises in ATM

5. Conclusion

Contents

1. Impact on Air Traffic

2. Impact on Air Transport

3. Overall economy

4. Economic impact of being prepared for crises in ATM

5. Conclusion

BeforeAfter

Traffic in Europe[1] before and during the April crisis

[1] In this note, ‘Europe’ refers to the EUROCONTROL Statistical Reference Area, see www.eurocontrol.int/statfor/faq for definition.

104,000 flights cancelled

48% of expected traffic 8 days –

peak 80% 18th April

10m PAX unable to travel

+ 7,000 flights cancelled

in May

Source: EUROCONTROL/STATFOR

Most affected Countries

Flights Cancelled (%) – April

15Apr 16Apr 17Apr 18Apr 19Apr 20Apr 21Apr 22Apr All

Finland 39% 90% 98% 100% 93% 96% 82% 64% 81%

Ireland 54% 94% 98% 100% 100% 90% 48% 8% 74%

UK 74% 95% 99% 99% 99% 93% 38% 6% 74%

Europe 28% 60% 77% 80% 68% 53% 23% 6% 48%

Source: EUROCONTROL/STATFOR

Most affected Countries

Flights Cancelled (%) – May

Estimated Fraction Cancelled

04MAY 05MAY 08MAY 09MAY 10MAY 11MAY 16MAY 17MAY All

Ireland

24% 27% 61% 54% 52% 56% 20% 31% 41%

Lisbon FIR

9% 11% 39% 38% 1% 2% 12%

Santa Maria FIR

14% 39% 58% 14%

UK

3% 15% 13% 8% 2% 1% 19% 26% 11%

What happened in Iceland ?

In April, traffic affected for 13 days. Not quite as high as Finland as Iceland maintained flights to North America.

In May, Iceland lost arrival& departures. Main effect was re-routing of North Atlantic flows to the North of the ash, which at peak increased overflight traffic by factor of 6.

Source: EUROCONTROL/STATFOR

Flights Cancelled per Market Segment 15 to 22 April (%)

TOTAL

Business Aviation

34%

All-Cargo

42%

Low-Cost Scheduled

61%

Traditional Scheduled

49%

Non-Scheduled

36%

Source: EUROCONTROL/STATFOR

Contents

1. Impact on Air Traffic

2. Impact on Air Transport

3. Overall economy

4. Economic impact of being prepared for crises in ATM

5. Conclusion

Examples

British Airways

Almost 100% flights cancelled btw 15 (11 a.m.) and 20 April

“lost passenger and freight revenue together with the costs incurred on

supporting passengers approximately £15-20 million (Eur

18-24 million) a day”

Lost Revenues: £106 (Eur130) million

easyJet

“Volcanic ash caused significant disruption to the operation in Q2 with 7,314 flightscancelled impacting nearly a million

passengers and costing an estimated £65 (Eur79) million in

lost contribution and additional costs caused by application of EU Regulation 2004/261”

Lost Revenues: £68 (Eur83) million

Ryanair

Air France-KLM

10000 flights cancelled

1 million PAX stranded

Lost Revenues: €158 million

Airlines

Airports

Ground-Handlers

ANSP

Worldwide

$1.8 billion in lost revenue (IATA)Positive Side - Reduced Fuel Costs$110 million per day

European Airlines - AEA

Eur 1.2 billion in lost revenue, passenger rights and stranded crew and aircraft

Regional Airlines (ERAA)

Eur 250 million

Charter Airlines (IACA)

Eur 310 million

Impact on 2010 Profit

European airlines forecast to lose $2.8 billion vs. Worldwide Profit of $2.5 billion (IATA, June)

313 Airports – 75% European Network affected

Loss of revenue

Eur 250 million (15 to 21 April) (ACI)

Financial direct loss

> Eur 200 million (IAHA)

Air Traffic Control losing Eur 25 million per day (CANSO, April)

Contents

1. Impact on Air Traffic

2. Impact on Air Transport

3. Overall economy

4. Economic impact of being prepared for crises in ATM

5. Conclusion

Network Impacts

Tourism

Output from Stranded

Passengers

Just-in-time Production

Perishable Goods

Air Transport

Source: Oxford Economics

Kenya’s Fresh Produce Exporters Association Daily Nationloss US$3 million a day for local producers of flowers, fruit and vegetables, thousands of workers temporarily laid off

Green beans: losses for African and Kenyan exporters of US$3.9 m and US$2.3 m respectively

Flowers: Lost sales may cost Kenya US$7 million over 1 week

Lost sales to African countries may total US$65 million (World Bank President)

Temporary suspensions in production at

BMW and Nissan in Germany, USA and Japan due to shortages of air-

freighted components

Korea Int.Trade Assoc. losses for domestic

industries btw April 16 - 19 estimated US$112

million. Suppliers of mobile phones and semi-conductors

hardest hit

Net loss global GDP from stranded workers in range US$280-$700

million

Induced impact from less output and spending

Lost Output from stranded Passengers

Measures taken to cover for stranded passengers

Aviation Net LossEurope - $1.4 bnWorld - $2.2 bn

Tourism Net LossEurope - $0.9 bnWorld - $1.6 bn

Induced ImpactEurope - $0.1 bnWorld - $0.2 bn

Productivity Net LossEurope - $0.2 bnWorld - $0.5 bn

Source: Oxford Economics, The Economic Impacts of Air Travel Restrictions Due to Volcanic Ash, Prepared for Airbus

-1,6

-2,6

0,40,2

Europe

World

$ Bn

Lost business

Business Deferred

-4,2-2,8

2,6

1,9

$BnTotal Impact

Europe: $2.6 bn

World: $4.7 bn

Contents

1. Impact on Air Traffic

2. Impact on Air Transport

3. Overall economy

4. Economic impact of being prepared for crises in ATM

5. Conclusion

Source: EUROCONTROL Guidelines for Contingency Planning of Air Navigation Services(including Service Continuity) Edition 2.0

ATM Contingencies

Events - Examples

Fire

Extreme object collision (aircraft, meteorite),

Extreme weather conditions (flooding, tornado, lightning),

Earthquakes

Pollution (chemical or else)

Pandemics

Major software bugs

Hostile attacks (terrorism)

Volcano Ash

...

Strategies - Examples

Closure of airspace and re-routing

Simplified route structure

ATS delegation

Development of “fallback” systems

Moving personnel to another location co-located or close to failing unit

1. Hazard assessment

2. Develop candidate mitigatingstrategies

3. Economic analysis of each

mitigating strategy

4. Propose informed

local policy ofService Continuity

1. List and describe the outages

2. Determine the probability of occurrence of -clusters of- outages

3. Perform an economic assessment of the “Wait and see” scenario

1. Describe the operating concept of the strategy

2. Describe how it matches the outages

1. Dialogue with the stakeholders

2. Perform analysis for each category of stakeholders

3. Finalise the economic analysis: Dropping the least cost-effective mitigating strategies and rank the remainder by merits

Economic analysis of each mitigating Strategy

Trade-off between the costs of the ‘wait-and-see scenario’ to each main stakeholder and the costs of the mitigating strategies

Costs of wait-and-see scenario

Delays, Re-routings, Flight Cancellations, Diversion to other airports to Airspace

Users

Loss of revenues to ANSP

Loss of revenues to Airports

Costs to passengers

Losses to the Country/Regional economy

Costs of Mitigating Strategies

Investment and Running Cost

Example: Building and maintaining

a fall-back Air Traffic Control Centre

Percent of benefit value

if received now

The probability of occurrence and to a lesser extent the discount rate has decisive

influence on economic value

The costs of wait-and-see

Probability of an outage

Total number of days of disruptions

Investment in mitigating strategy and the cost of maintenance of such investment.

Conclusions

1. More than 100 000 flights cancelled <> 10 million pax journeys

2. All segments affected but especially the low-cost segment (61% flights bte 15 and 21 April)

3. Airlines lost $1.8 billion in revenues worlwide and European airlines Eur1.2 billion

4. European airlines to lose $2.8 billion in 2010 vs. Worldwide Profit of $2.5 billion

5. Economic impact beyond aviation including producers of fresh goods, just-in-time supply chains...

6. Total economic impact : Europe: $2.6 bn, World: $4.7 bn

7. Need to be prepared: trade-off between the costs of ‘wait-and-see’ and the investment and running costs of being prepared taking account of probabilities of outages