Lava saga

Lava saga

Charlotte Hodgeman and Mandy Aitchison take a look at the different industries that have been severely affected by the eruption of the Eyjafjallajokull volcano in Iceland

First published in ITIJ 112, May 2010

Charlotte Hodgeman and Mandy Aitchison take a look at the different industries that have been severely affected by the eruption of the Eyjafjallajokull volcano in Iceland

The travel insurers

Travel insurers are now preparing for claims from customers who have lost out on accommodation they had pre-booked as a result of flight being cancellations, although many hotels are offering different dates of stay to guests who have been affected by the ash cloud. The media is telling travellers that their first port of call should be the airline they booked with, followed by their accommodation provider – if neither of these avenues yields any results, they should then contact their travel insurer.

As ever, the fact that no two policies are exactly the same is also causing plenty of confusion among travellers, with many reading their small print for what will probably be the first time. A spokeswoman for RBS Insurance said customers with insurance bought through Direct Line, Churchill, NatWest and RBS could be able to claim for lost accommodation: “If a customer has a flight cancelled and is refunded by the airline, but still has accommodation that they can’t cancel or use, these claims can be considered under travel delay leading to trip abandonment. Customers will need to provide written official evidence to support any claims where it is reasonable to request such evidence.” Over-50s insurer Saga has said it will honour all claims of this nature as long as customers obtain a letter from the airline to confirm the flight was cancelled due to the weather conditions. Aviva policyholders, though, will not be able to claim. A spokesperson for the insurer said: “Cancellation or abandonment of your holiday covers specific events only, such as injury, illness, death of the person insured or their travelling companion/relative, redundancy or damage to your home by fire, flood or storm.” Fortis has said it “will be treating the volcanic ash incident as a bad weather event, which means that customers may be entitled to claim under the terms of their travel insurance policy. Customers are advised to check their terms and conditions.”

Jayson Westbury, chief executive of the Australian Federation of Travel Insurers, said that while insurance policies differed, his discussions with the travel industry left him with the impression that insurers would not walk away from travel claims on the ‘act of God’ exclusion clauses, provided travellers had a policy in place before the volcano erupted.

A report in the New York Times said that industry officials are treating it as a weather-related event in their polices and companies have typically covered non-refundable prepaid travel that pays stranded travellers US$150 to $250 a day up to a maximum of $1,500. Daniel Durazo, director of communications for Access America Travel Insurance and Assistance added: “Thousands of our customers have been affected and we expect to pay out up to seven figures in travel insurance-related claims.”

“Cancellation or abandonment of your holiday covers specific events only, such as injury, illness, death of the person insured or their travelling companion/relative, redundancy or damage to your home by fire, flood or storm.”

Jim Grace, president and chief executive of InsureMyTrip.com had reassuring news for travellers: “The good news is that travellers who purchased insurance on or before April 13th when this situation first became a public phenomenon, have important coverage benefits available to them. Despite the bizarre nature of this event, travel insurance can and does provide very real protection for a situation that no one could have predicted.”

The travellers

There’s no doubt about it, mankind’s reliance on air transport has been fully realised by the recent lava saga, and newspapers across the world have regaled readers with tales of epic journeys made by thousands of desperate travellers. One British family paid more than £8,000 to get their son back to the UK to sit his A-Level exams – and even hired a private boat to take them across the Channel. The family managed to catch a flight from Madrid to Paris on Thursday15 April, and then spent almost £590 on a taxi to Calais. After being told there were no ferries available, Ken Caskie and his wife hired a private boat to take them back to Dover at a cost of £800. Mr Caskie, 53, of Woking, Surrey, said: “We spent £8,000 extra on getting back. It's madness, but we had to get back for my son Max's psychology exam and his friend Cameron's politics exam.”

Elsewhere, three Royal Navy ships were dispatched to France and Spain to rescue some of the 300,000 Brits stranded across mainland Europe. Tourists collected by the 570-ft ship HMS Albion from the Spanish port of Santander joined 500 troops returning from Afghanistan who had flown to Madrid and took the ship to its capacity of 1,150 including crew.

Even the rich and famous couldn’t escape the bedlam caused by the volcano eruption. British singer/songwriter Newton Faulkner was stranded for days in Hong Kong, and had to postpone a number of shows in Europe, while US singers Usher and Adam Lambert are unable to carry out promotional duties in Europe. Rockers Status Quo were stranded in Moscow after two live shows – the group were planning to take a 24-hour train journey to Poland, where they were then start driving to a ferry port. Whitney Houston, meanwhile, was forced to board a ferry to make it across the Irish Sea to perform in Dublin.

No-fly zone

In the six days that European airspace was closed as a result of the Icelandic volcano eruption, airlines lost more than $1.7 billion in lost revenue, according to IATA – the International Air Transport Association. For the first three days of the eruption, when disruption to air travel was at its highest, lost revenues reached $400 million a day. There was, however, a small, almost imperceptible silver lining to the groundings – the industry’s fuel bill would have been $110 million a day less than normal.

Giovanni Bisignani, chief executive of IATA, commented: “At the worst, the crisis impacted 29 per cent of global aviation and affected 1.2 million passengers a day. The scale of the crisis eclipsed 9/11, when US airspace was closed for three days. For an industry that lost $9.4 billion last year and was forecast to lose a further $2.8 billion in 2010, this crisis is devastating.” He continued: “It is hitting hardest where the carriers are in the most difficult financial situation. Europe’s carriers were already expected to lose $2.2 billion this year – the largest in the industry.”

Bisignani made four specific requests from governments to aid the recovery of the airlines affected by the crisis, one of which was to address unfair passenger care regulations. He said: “This crisis is an act of God – completely beyond the control of airlines. Insurers certainly see it this way. But Europe’s passenger rights regulations take no consideration of this. These regulations provide no relief for extraordinary situations and still hold airlines responsible to pay for hotels, meals and telephones.” In his opinion, the regulations were never meant to pay for extraordinary events such as the days of closure recently seen. He also asked for governments to examine ways to compensate the airlines for lost revenue – following 9/11, the US government provided $5 billion to the airlines that had been grounded; the European Commission could provide similar assistance.

In the six days that European airspace was closed as a result of the Icelandic volcano eruption, airlines lost more than $1.7 billion in lost revenue

The volcano affected airlines around the world, with Qantas in Australia cancelling dozens of flights at an estimated cost of A$1.5 million a day. The move to restrict outbound travellers from Australia came as accommodation in the transit hubs of Singapore, Hong Kong and Bangkok was described as ‘extremely limited’. Lufthansa lost an estimated £22 million per day; British Airways around £20 million a day; while Emirates lost around £10 million a day, plus £1 million due to providing accommodation and meals for 6,000 stranded passengers.

The airlines are expected to have little joy with their insurers either – a spokesman for Munich Re said: “Normally the airlines are not insured against cancellations.” Munich Re, along with Swiss Re, are two of the world’s largest airline reinsurers, acting as a backstop for insurers such as Allianz, providing cover against damages from crashes or liability claims. Hannover Re, which also has a significant share in airline reinsurance, said that business interruption at airports was also not covered by insurers. Munich Re said the disruption caused by the cloud could spark an interest in insurance coverage that has been lacking up until now: “For Munich Re, it would not be a problem to offer (flight) cancellation coverage, but up to now there has not been demand in the market. Maybe that will change now.”

A spokesman for Aon Limited said: “Successful claims against standard airline liability insurance policies due to delays as a result of the volcanic eruption in Iceland are unlikely. This is a natural event and there has not been any actual damage to aircraft or property at this stage.” Magnus Allen continued: “Equally, this is such a rare event that it is unlikely to have been covered under business interruption policies. Under the European regulations, EC261/2004, the obligations on operating airlines should be limited or excluded in cases such as this, where an event has been caused by extraordinary circumstances that could not have been avoided even if all reasonable measures had been taken.”

Loretta Worters, spokesperson for the Insurance Information Institute, noted: “In terms of business interruption for the airports, there would be none because there is no physical damage to the airport or planes. So certainly this will be a financial setback for the airlines.”

Alternative transport

There were a few people and companies that benefitted from the volcanic ash, not least of which are train and ferry firms. Eurostar, the well-known cross-Channel rail operator, saw its passenger numbers grow by 50,000 during the first four days of cancelled flights, as vast numbers of British holidaymakers headed for Paris and Calais, while European travellers stranded in the UK arrived at London’s St Pancras train station hoping for a train home. As a result of the high numbers of people needing transportation across the Channel, Eurostar ran at least five extra services each day, although prices for the newly offered seats were higher than they would normally have been. Nicolas Petrovic, chief executive of the train line, said: “We are doing everything we can to help as many passengers as possible at this difficult time. We’re putting on extra trains and making 30,000 seats available at a special price.”

Another sector of the transport industry that benefitted from the disruption was the ferry companies operating around Europe and the English Channel. William Gibbons, director of the Passenger Shipping Association, said: “I don’t think there is any shortage on capacity. I don’t think the navy ships will be of any use at the French Channel ports.” He was making reference to the move by the British Government to send out Navy ships to rescue stranded tourists from France and Spain. Gibbons added: “This all seems to have been done rather hastily. The Channel ports are no busier than on a typical summer’s day.”

Chris Jones, a spokesman for Brittany Ferries, said there were plenty of spaces onboard their ships for tourists in need, while P&O Ferries said it had seen more than ten times the number of daily bookings usually seen in April, but the company has managed to accommodate everyone wanting to travel from Calais to Dover.

The tour operators

The ash cloud may be dispersing, but the costs to tour operators and travel agents look set to linger for some time. TUI Travel plc, a unit of travel operator TUI AG, says disruption caused by Iceland's volcanic eruption has cost it at least £20 million (US$31 million), estimating that daily costs would run at between £5 million and £6 million per day. The company confirmed that around 90 per cent of customers in Britain who were due to go on holiday and whose flights have been cancelled were choosing to re-book their holidays for a later date.

Meanwhile, Thomas Cook, which had more than 50,000 British holidaymakers stranded overseas, partnered with Celebrity Cruises to bring tourists home. The company also ran a series of rescue flights for customers in Mexico, Dominican Republic and Cuba, while others were brought back from Italy and Spain via coach and ferry. The cruise company also teamed up with TUI UK, Thomson Holidays, First Choice and the Co-operative Travel Group to rescue stranded travellers.

disruption caused by Iceland's volcanic eruption has cost [TUI Travel plc] at least £20 million (US$31 million)

Speaking six days after the airspace shutdown, Mark Tanzer, chief executive of the Association of British Travel Agents, welcomed the announcement of the initial lifting of the current air travel restrictions over UK airspace. He said: “This is very good news for passengers. It will enable the normalisation of travel arrangements to begin, but this will necessarily be a phased process, due to length and scale of the suspension. Priority will be to return overseas passengers to the UK as soon as possible.”

A Voyageur perspective

Even Bristol-based Voyageur felt the effects of Iceland’s eruption after conference organisers Denise Clements and Kirsty DiClaudio found themselves stranded in Istanbul, Turkey, after heading out there to organise November’s International Travel Insurance Conference. The initial plan was for the pair to fly to Rome and then onwards to Paris, where a train would be the next mode of transport back to the UK. However, unlike most action movies, all did not go as planned, and nearly one week after they were supposed to fly direct from Istanbul to London, UK, Denise and Kirsty made it back to the office. Their journey involved flying from Istanbul to Athens, Greece, and then Athens to Madrid, Spain, where they then hired a car and drove to Caen, France, where a ferry brought them back to Portsmouth and home soil. 70 hours of non-stop travelling later, they were back in Bristol. Phew!

Meanwhile, medical repatriation specialist Voyageur 24 was inundated with telephone calls from anxious travellers confused about what they should do and whether their flights and extended hotel stays would be covered as the ash cloud descended. Many of those calling for hotel stay extensions were school parties and others wishing to book hotels near to airports.

The team reported a breakdown in communication between airlines and insurers, so many travellers were left unsure as to what, if anything, would be covered by their policy. Moreover, as airlines fight to clear the backlog of people trying to return home, those in hospital abroad waiting to be repatriated via commercial airline have been pushed to the back of the queue.

The fallout

As well as the travel industry, other frequent fliers have been affected by the closure of European airspace. Britain’s supermarkets are predicted to run short of perishable goods such as exotic fruits, Kenyan roses and baby sweetcorn from Thailand – airfreight makes up about 25 per cent of all British imports by value. Many pharmaceutical companies rely on airfreight to transport goods and thousands of pounds of fresh salmon trucked in from Scotland and Norway were left rotting at London’s Heathrow International Airport.

And another thing…

Eyjafjallajokull: It’s pronounced ay-uh-fyat-luh-yoe-kuutl (-uh)...