European airline stock wrap: More pain in the ash


In a situation perhaps best described by Yogi Bera's famous malapropism, "it's dejavu all over again", a cloud of volcanic ash from Iceland is again drifting towards Western Europe's airspace.

  • Volcanic ash from Iceland is drifting towards Western Europe's airspace, reminiscent of the 2010 airspace closure.
  • The European Aviation Crisis Coordination Cell (EACCC) has issued new guidelines allowing airlines to decide on flying in ash-contaminated areas based on safety risk assessments.
  • The new guidelines could result in differing assessments by national regulators, leading to a patchwork of open and closed airspace across the region.
  • The current ash concentration in Scotland and parts of Scandinavia exceeds the allowed limit, resulting in halted operations.
  • The ash from this eruption consists of larger and heavier particles, which are more likely to fall before spreading as far as the lighter ash from the 2010 eruption.
  • While the impact of the current eruption is not expected to be as massive as in 2010, the outcome depends on the volcano's eruptive activity and weather conditions.

While most were betting against the kind of chaos that closed airspace for six days in 2010, it is quickly becoming evident that a clear operational plan is not yet fully established.

Instead of a blanket policy, the new guideline issued by the European Aviation Crisis Coordination Cell (EACCC), "allows airlines to decide if they will fly in areas contaminated by ash, on the basis of a safety risk assessment accepted by the relevant national supervisory authority." In other words, each airline, in consultation with its aviation authority, may decide on operations based on agreed safety standards.

The procedure has been adopted by some EU members and is pending with others. While the EACCC has defined the minimum threat threshold, individual airlines and/or governments may impose stricter standards.

Though an improvement on the 2010 reaction, the new rules could result in differing assessments by national regulators that could result in a patchwork of open and closed airspace across the region.

Under the new minimal guidelines that apply, about half of last year's grounded flights could have operated but given the many variables involved, finding a clear policy remains challenging.

One thing has been agreed on and that is that the current ash concentration across Scotland and parts of Scandinavia is in excess of that allowed and operations to/from those points was halted.

There are also differences in the makeup of the ash with this eruption spewing larger and heavier particles than was the case in 2010. This means that they are far more likely to fall before spreading as far as did the lighter 2010 ash.

According to information on the Eurocontrol site, they are warning that going forward, northern UK and some Scandinavian airspace may continue to be affected but that they do not foresee the kind of massive impact associated with the 2010 event.

Of course, the actual outcome is dependent on the volcano and its eruptive activity. Vulcanologists rate this event as being more powerful than last years but that weather conditions, along with heavier ash, have thus far limited the consequences.

While the EU and the airlines appear to have made significant progress in defining the threat posed by ash clouds, as well as the way risk is assessed, the episode once again highlights the vulnerability of the industry to external and uncontrollable forces.

See related report: Iceland's Grímsvötn volcano: Europe's new airspace management approach put to the test

European airline shares were mixed yesterday. IAG, Lufthansa and Air France-KLM were lower, while Aer Lingus and Icelandair gained.

European airline shares price changes: 24-May-2011


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