Ukraine War and Airlines: Here’s What We Know so Far

Madhu Unnikrishnan
February 25th, 2022 at 1:23 PM EST

The world’s airlines have already begun to feel the fallout from Russia’s invasion of Ukraine, just two days into the conflict, with more repercussions expected as the West and Moscow escalate sanctions and other punitive measures.

Airlines around the world, even those outside the European Union like Turkish Airlines and Japan Airlines, have begun suspending flights not just to Ukraine, but to Russia.

Ukrainian and a Western Russian airspace closed almost immediately after the invasion began, with flights diverting to the north and south en route to the Middle East and Asia. But the situation changed dramatically Thursday as the fighting intensified. The U.S. Federal Aviation Administration issued a notice to air operators prohibiting Ukrainian overflight and extending banned airspace further into Russia.

Belarus, deeply involved with Russia in the invasion, closed its airspace to civilian flights, but the impact is likely to be minimal as European carriers had kept the country at arm’s length after it diverted a Ryanair flight last year. Moldova, to the southwest of the conflict zone, also closed its airspace.

These are primarily safety closures. But the situation escalated with airspace closures that were more political in nature. Poland banned Russian airlines Friday morning, forcing Aeroflot to cancel Warsaw-bound flights.

On Thursday, UK Prime Minister Boris Johnson banned Russian flag carrier Aeroflot from operating to Britain from Friday. Aeroflot cancelled its daily Moscow-London flight.

In retaliation, Russia banned all UK airlines from overflying its airspace, a route that European carriers fly to reach Asia. This will require British Airways to reroute Asia-bound flights to the south or to the west, for polar routes to North Asia and to avoid Siberian airspace.

So far, the issue has had a minor impact on the carrier. “We have rerouted the flights that we were operating to Singapore and Delhi, not to fly over Russia, International Airlines Group (IAG) CEO Luise Gallego said Friday on the company’s fourth-quarter and full-year earnings call. “The capacity we are flying to the East is very reduced and all the flights that we are doing now, we can reroute, so we can maintain the schedule that we have in mind.”

For most routes, the added time will be a “nuisance,” rather than debilitating, airline data provider OAG said Friday. For example, flying time increased by 10 minutes on rerouted London-Singapore flight operated by Singapore Airlines. “For airlines operating to and from North East Asia where Russian airspace has been heavily used, finding alternate routings would be slightly harder, but not impossible given the range of new aircraft types, OAG said. “Some could head further north with a polar routing, whilst some could head south, but either way once again the potential inconvenience could be offset by reduced en-route charges.”

And the last point is key. Russia charges global airlines hundreds of millions of dollars per year in overflight fees to use Siberian airspace en route to Asia. Any rise in rerouted flights’ fuel costs could be offset by less expensive overflight fees in other polar-route countries, like the U.S. and Canada.

The Pain Is Just Beginning for Aeroflot

The airline that will most feel the pain, however, is Aeroflot. The Russian government funnels much of its overflight revenue to the airline, propping up its financial results. But the effects of lower overflight royalties is just one among many problems facing Aeroflot from the crisis.

The carrier had expected to operate 5,500 flights to European and NATO countries in March. In March 2019, the carrier generated more than $20 million in revenue from Germany alone. Most European countries have yet to follow Britain in banning the airline. And data on cancellations of already-booked flights from Europe to Russia is scant now, but it is reasonable to conclude that demand for March travel between Russia and the European Union will be minimal as the conflict endures.

Delta Air Lines, which had a codesharing agreement with Aeroflot, on Friday said it is cancelling its commercial partnership with the Russian carrier. The deal allowed Delta to use its code on Aeroflot flights beyond Moscow, and for Aeroflot to use its code on Delta flights from New York Kennedy and Los Angeles. So far, other SkyTeam alliance members, which include such airlines as Air France, KLM, and Korean Air whose governments have sanctioned Russia, have not followed suit.

Sanctions also will take a toll on Aeroflot. It and its low-cost subsidiaries Rossiya and Pobeda operate a fleet of more than 300 mostly Boeing and Airbus aircraft. Sanctions announced by European Commission President Ursula von der Leyen on Thursday specifically ban the sale of European aircraft to Russia, imperiling further Airbus deliveries to the country as well as deliveries of Dassault business jets favored by Russian oligarchs.

U.S. sanctions announced by President Joe Biden also include export controls, but are broader, prohibiting the sale of U.S. technologies that can be used by aerospace companies. This may extend to technologies used in Boeing aircraft.

Both Boeing and Airbus have yearslong backlogs for their aircraft, so reselling the lost sales to Aeroflot and other Russian carriers likely will not be an issue for them. But it will prevent Russian airlines from expanding their fleets. More immediately, however, Russian carriers could feel the effects on maintenance, if they are unable to access U.S. and European parts for aircraft. An analogue would be Iran, which under sanctions has been forced to keep a fleet of 1970s-era jets in operation. Although Russia is rebuilding its aerospace industry, it does not yet have the capabitily to build the long-range widebody jets Boeing and Airbus provide, and its homegrown aircraft rely on Western technologies and engines.

Oil Is the Wildcard

IAG, the first carrier to report earnings since hostilities began, brushed off concerns about the conflict’s effects on oil prices. The cost of fuel already had risen by 30 percent in the last year as demand for oil resumed as the world recovered from the pandemic. The group said it has hedged most of its fuel costs, so it is insulated from fluctuations.

The price of Brent crude surged past $100 per barrel on Thursday for the first time since 2014, but it has since settled to $93 per barrel — higher than it had been, but lower than expected. Russia supplies about 10 percent of the world’s oil, and so far energy has been excluded from sanctions. The U.S and its allies are leaning on other oil-producing countries to increase supply, and the U.S. is expected to sharply expand domestic production. But where the price of oil settles in the next few weeks is expected to be critical to airlines as they plan for peak summer demand.

This is a developing story and will be updated.

Madhu Unnikrishnan
February 25th, 2022 at 1:23 PM EST

 

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