Icelandic volcano risk, again | FT Alphaville

Icelandic volcano risk, again

As if the threat from radicalised printer ink cartridges wasn’t bad enough.

We wonder if airline investors are watching the following too (via Reuters):

Meltwater [is flooding] from the Grimsvotn glacial lake in Iceland and could signal the volcano underneath is about to erupt, a spokeswoman at the Icelandic Civil Protection Department told Reuters on Monday.

In April, clouds of ash from an eruption under the Eyjafjallajokull glacier grounded flights across Europe for a week, causing billions of dollars in losses for airlines and other industries.

The airline shorts are circling already, we hear.

Looks like Grímsvötn (pictured right in happier times) did indeed disrupt air travel into Iceland for about a week during its last eruption around November 2004 (it’s one of Iceland’s most active volcanoes) — but with much more localised effects on Europe’s airspace than this spring.

Plus you’d have to be quite sure of whether Grímsvötn will break its usual habit of low-level Strombolian-type eruptions, which tend not to pump ash up to aircraft-endangering altitudes.

From which we would conclude two three things:

a) At least it’s more pronounceable than the last one.

b) Vulcanology’s associated complexities make shorting challenging.

c) Though if the shorts are coming on already, this is a classic example of how investors approach tail risk, perhaps.

If something pretty unique but hugely damaging happens once, they’re determined to protect themselves in case it happens again in exactly the same way. Which, what with it being unique, is unlikely. But still they try.

Could be just us, though.

Related link:
BA versus the volcano – FT Alphaville