Millions lost annually throughout the travel industry as a result of the weather


It is the season of summer vacation, and one would be hard-pressed to find anyone not spending a considerable amount of time contemplating the weather and how it may be enjoyed or coped in the weeks ahead. The considerations are endless: when buying airline tickets and praying fights aren’t delayed or cancelled, packing for all eventualities (despite increasing limitations on baggage by airlines in recent years), and when booking tours and activities in advance, to name a few. However, despite all this attention to the weather, the possibilities for comprehensive insurance coverage for all aspects of the travel industry remain extremely limited.

Presently, the largest proportion of insurance for the travel sector is for airlines insuring against business losses due to aircraft damage or loss, in the same way that travellers can insure for enhanced medical expense coverage, trip cancellation/interruption coverage due to work reasons and involuntary job loss, emergency travel, etc.  For both sides of the equation, the traditional insurance scheme usually entails a standard one-fits-all cover, a deduction, and a field loss assessment.  For both, weather risks are not widely taken into consideration and the opportunities for more comprehensive and effective insurance for all aspects of the travel industry have surprisingly not been widely embraced.

However, the possibilities for weather insurance for travellers alone are considerable: compensation for each day it rains on a beach resort holiday, or the slopes are unsuitable for skiing due to lack of snow, or for lack of wind when on a rented sailboat. Travel agencies, tour operators and airlines would all profit immensely by offering their customers such “good weather insurance”. It would enable them to reassure prospective customers that they should book far in advance and not sit on edge waiting to see if it is a good weather season (or simply stay home altogether), and it would result in increased customer loyalty.

The advantages to purchasing weather insurance are not limited to vacationers, however. Manufacturers of aircraft parts (such as engines, landing gear, and brakes) can also profit immensely from such coverage.  Such manufacturers design, build and maintain aircraft parts then provide them to airlines, who purchase them outright or more often, lease the equipment.  Weather insurance would be invaluable in compensating for increased maintenance costs associated with the wear and tear of parts as a result of adverse weather conditions, and the reduced value of the parts at the conclusion of the leasing period.

Finally, airline operators can profit directly from weather insurance.  Consider this: last year, 45% of airports delays across Europe were caused by the weather. At Paris Charles de Gaulle airport alone, there were 500,000 minutes of delays as a result of the weather. Each minute cost a staggering 70 euros. In addition, adverse weather conditions during flight paths result in enormous costs, including for instance from the over-consumption of jet fuel as a result of increased winds.

An airline that manages its weather risks across the entire value chain improves its margin predictability, reducing the need to raise ticket prices to compensate for the effects of adverse weather conditions.  In fact, an airline may choose to apply the revenues it makes in such an instance directly to its customers, so that if a flight is delayed or cancelled the customer will be compensated. Or, it may choose to benefit customers indirectly, by applying these revenues to investing in operational management procedures such as enhancing air security processes, new technologies or employee development.

In fact, today, thanks to advances in weather data technology, weather forecasting and new index weather hedging tools, there is an unprecedented increase in the number of companies who insure, or are about to insure, against the consequences of unfavourable weather. They understand that weather is a massive factor in every company’s risk outlook, and this situation will only worsen. Climate variability, that is to say deviations from the weather from its normal value, has increased significantly since the early 2000s. The variability of temperature has doubled since 2000 in Western Europe, which means that if the temperature had an impact on a company’s revenues 15 years ago, this impact has doubled. Globally, the cost of climate variability each year is nearly 2,000 billion euros.

Thus, travellers, airline parts manufacturers, airports, travel agencies, tour operators and airlines all require innovative risk management solutions, including customized index-based hedging solutions, to protect themselves when weather conditions adversely impact their businesses or profits or generate additional costs, and to provide a competitive edge over their competition. In each case, Meteo Protect acts as the dedicated partner, working closely with each business’s tech and financial teams to provide a weather risk assessment, build the weather index that best reflects their unique weather risks, and design the cover structure that best meets their financial objectives.

Thus, while we cannot insure that every vacation, flight, or take-off will be clear skies and sunny days, we can insure that no one suffers financially as a result of Mother Nature not cooperating with our travel plans.