Smoke rises from the Grimsvotn volcano, under the Vatnajokull glacier in southeast Iceland.
Smoke rises from the Grimsvotn volcano, under the Vatnajokull glacier in southeast Iceland.

The giant ash cloud from an Icelandic volcano threatening to shut European airspace hit airline shares this morning.

Shares in International Airline Group (IAG), the owner of British Airways and Iberia, plunged 3.64 per cent, while easyJet sank 3.86 per cent. London was down 1.34 per cent overall.

The tour operators Thomas Cook (-3.65 per cent) and TUI Travel (-2.91 per cent) were also hit as the eruption caused uncertainty in early trading.

It was a similar story across Western Europe. Shares in German airline Lufthansa fell by 4.56 per cent while the DAX slid 1.5 per cent.

Air France-KLM was down more than four per cent at the opening of trading, the biggest loser on the Paris stock market.

The Grimsvotn volcano began erupting on Sunday, causing flights to be cancelled at Iceland's main Keflavik airport after it sent a plume of ash smoke and steam 12 miles into the air.

Experts have said the eruption was unlikely to have the same dramatic impact that the Eyjafjallajokull volcano had in April 2010.

That eruption sent a massive cloud of ash across Europe causing the world's biggest airspace shutdown since World War II with more than 100,000 flights cancelled and eight million passengers stranded.

The costs in terms of lost revenue and compensation to passengers were a blow to the airline industry, particularly in Europe.

Denmark has already closed some airspace over Greenland and Norway said it will cancel flights on Monday to the country's Arctic archipelago of Svalbard.