The market in action - volcano edition

Here's something to test someone's underlying beliefs. When I saw the advert below on the flybe website, I thought "brilliant - it's less than a month since the volcanic ash (as exogenous a shock as one could possibly imagine) and already airlines have created an insurance product to prevent the same problems happening again. The market in action!"

But then perhaps this merely demonstrates my prior beliefs. Would some people see it and think "nice one! a tad late for all that, it's pretty useless to be offering it now".

I suppose it depends on whether or not you think this should have been anticipated. Why is it that flybe are only acting retrospectively? If you'd have asked someone to assign a probability of this event occurring before hand, would that have been meaningful? I doubt it. For me the volcano is an illustration of sheer ignorance, and I'm surprised how quickly airlines have responded.

Finally, most people seem to accept that the flight ban was lifted at the request of the airlines, primarily for financial reasons. But people also seem to have realised that the prior regulatory regime was too conservative. This is a puzzle - because very few people seem to be arguing that this is evidence for why the profit motive might be a better way to conduct airline safety policy than regulatory concerns. Again, this might merely be my priors coming to the surface but I daresay those stranded by the ban wish that BA and other airlines had put their profits "before" safety a little earlier.

Comments

[Quinn]

Regarding your last paragraph, you seem to be saying that the old regulatory regime was too conservative, therefore that is an argument against a regulatory regime? Sadly, the history of airline regulation is of profit being put before safety with fatal consequences, leading to retrospective safety regulation.

Specifically on the volcanic dust issue, I find it hard to find fault with any party. It is all well and good Willie Walsh and others getting angry with the regulators' handling of the situation, but surely it is as much the airlines job to be aware of the safety threshold regarding volcanic ash and its possible consequences? Somehow a situation was reached at where there was a zero tolerance of any volcanic ash - a position which now seems too conservative - and neither the regulators, airlines nor engine manufacturers chose to test this prior to last month. They'll all have their reasons, but to me it seems a collective failure.