The Eruption Epidemic: More Ash, More Cancelled Flights

The Eyjafjallajokull volcano in Iceland began to erupt again, grounding flights in the northern UK.  And there are fears that the nearby Katla volcano may be unstable. Airports around Europe may be shuttered again. That would mean that the $2 billion price tag airlines paid on the first severe eruption may not be over.

The Eyjafjallajokull caused carriers to look to their governments for financial supports.  Airlines also accused government officials of being too cautious in restricting flights. And, it also caused a concern that ongoing volcanic activity could periodically affect air travel in Europe for long time. Eruptions from the same volcano can go on for months. The last eruption of Eyjafjallajokull in 1821 lasted for more than two years.

The problem in the skies over Europe comes at a particularly difficult time, which has driven mergers like the recently announced marriage of UAL (NYSE: UAUA) and Continental (NYSE: CAL) Rising crude prices (oil trades just shy of $87) have caused a spike in jet fuel costs that contributed to losses at major airlines in the first quarter.

Volcanoes and fuel prices= more mergers.

–Douglas McIntyre