The Business Effects of the Ash Cloud

The effects on the leisure and travel industries of the Icelandic ash cloud are a great example to use with students of how sudden, unexpected changes in the external environment can significantly damage business performance. Effective contingency planning can help, but which business might have predicted and planned for the widescale disruption caused by the volcanic ash cloud?

Management consultants PwC have produced this excellent, short report on the business effects of the Icelandic volcano. Here are some of the key points that students might take from it:

Significant adverse effects on the cash flow of leisure and travel businesses such as airlines, travel agents and tour operators (in an industry which relies on the cash flows from advanced bookings). Customers will be less confident of making travel plans - delaying making their bookings. The cash costs of repatriating stranded customers, and of the increased losses incurred whilst not flying, will place great pressure on cash flow

Businesses most badly affected by the ash cloud:
- Airlines
- Tour operators & travel agents
- Flight websites

Businesses likely to be hit, but not so hard
- Airport operators (lower passenger numbers), but they are still able to charge their retailers rent
- Air freight operators (lower volumes), but goods may not be able to shipped over land or sea, so some of the lost volume may simply be delayed
- Airport support services (e.g. catering, cleaning) where demand is linked to the number of passengers flying