The cost of the Ukraine crisis on the aviation sector

In this file photo, an Airbus A320 passenger plane of Russia’s flagship carrier Aeroflot descends before landing at Sheremetyevo International Airport in Moscow. Russian airlines have by far been the worst impacted by the war. .  (Photo: Reuters)
In this file photo, an Airbus A320 passenger plane of Russia’s flagship carrier Aeroflot descends before landing at Sheremetyevo International Airport in Moscow. Russian airlines have by far been the worst impacted by the war. .  (Photo: Reuters)

Summary

  • Longer flights, high fuel costs, fewer planes. Airline companies face multiple headwinds
  • One of the fallouts of the war has been on fuel prices. The cocktail of high fuel prices and lesser number of operational flights have led to a sharp rise in international airfares.

NEW DELHI : Twenty-nine-year-old Lipika Kankaria divides her time between the US and India. She lives with her husband in San Francisco, but is pursuing a PhD at the National Institute of Technology (NIT) Durgapur.

Kankaria wanted to visit India on 2 May and booked her tickets nearly four months in advance—in January. In the world of aviation, booking early usually ensures a better deal on tickets.

Advantage Indian airlines
View Full Image
Advantage Indian airlines

However, her plans didn’t go as expected. On 24 February, Russia began its invasion of Ukraine, throwing struggling airline companies, still recovering from covid-19 pandemic blues, into further turmoil.

Within a few days of the first missiles raining down on Ukraine, the global commercial aviation map was altered and airline companies had to re-chalk routes, besides cancelling many flights. The European Union, US, Canada and other Western countries closed their airspace to Russian airlines. Russia retaliated with similar measures. According to Bloomberg, more than 300,000 jets use the Russian airspace each year; crossing Russia is the fastest route between Europe and South Asia.

Kankaria had booked with United Airlines. The airlines cancelled the flight to India. United’s flights usually use the Russian airspace to reach the subcontinent.

“They credited the ticket amount back. But the price of new tickets on the sector was very high," said Kankaria, who next made her booking with Singapore Airlines. “I had booked United for about $700 in January (about 52,000- 53,000). Now, I had to pay about 65,000," she added.

Travellers between the North American countries and South Asian countries have been the most impacted by airspace closures. Besides United, Delta Airlines, Air Canada and Virgin Atlantic also cancelled several flights to the Indian sub-continent in recent weeks.

Airspace restrictions have added several hours of extra flight time and millions of dollars in additional costs to the airlines as well—longer flights imply higher fuel expenses.

Flights that take polar routes (fly close to the poles) need Russian airports for diversion. Losing access to Russian airports mean these flights will have to go further south of Russia, requiring technical stops for fuelling, thus increasing flight time and costs considerably.

Yet, a few airlines, especially from India, China and the Middle East, continue to use the Russian airspace. They can complete flights to North America and Europe in lesser time versus their European or American competitors. And they include Air India, Cathay Pacific, Air China, China Southern, China Eastern, Korean Air, Eva Air, Asiana, Emirates, Etihad and Qatar Airways .

According to data from flight tracking portal Flightradar24, Air India’s flight between New Delhi and Chicago on 19 March completed its journey in 14 hours 55 minutes. United Airline’s flight on the same sector on 19 March took 16 hours 38 minutes.

Long journeys

How long will the disruptions run? It is anyone’s guess at the moment.

A spokesperson of United Airlines told Mint that the Chicago-based airline expects short-term disruptions due to the closure of the Russian airspace.

“We continue to evaluate and adjust our schedule in response to the evolving situation in Ukraine–we’ve temporarily suspended service between San Francisco and Delhi and between Newark and Mumbai and our current plan is to continue flying between Chicago and Newark to Delhi," the spokesperson added.

European airlines like British Airways have adjusted their routes from New Delhi to London, adding an hour of flight time, while Australian airlines Qantas has changed its route to London by flying over the Middle East and Southern Europe instead of Russia.

Finnish national carrier Finnair’s flight between Helsinki and Delhi—earlier via Russia, Kazakhstan, Kyrgyzstan and China—now flies south from Helsinki, across the eastern Mediterranean and east across the Arabian peninsula and the Arabian Sea before landing in Delhi. This flight, which used to take seven hours, now takes over nine hours to complete.

In early March, Finnair announced the suspension of lucrative routes to Seoul, Osaka, Tokyo, Shanghai and Guangzhou due to the unavailability of the Russian airspace to fly to the Far East.

European carriers such as KLM Royal Dutch Airlines, Lufthansa and Air France had to similarly cancel and cut down their flights to Japan and the Far East.

Meanwhile, Japanese airlines like Japan Airlines and All Nippon Airways had to cancel several flights to Europe due to the blockade. These airlines are currently only operating a handful of flights to Europe.

Impact on Russian airlines

Russian airlines have by far been the worst impacted by the war.

Although domestic networks form a large part of Russian airline operations, their ability to operate may be compromised due to lack of maintenance support from foreign original equipment manufacturers (OEMs) as well as the termination of leases with foreign lessors. International aircraft lessors, in turn, may not get their payment or the planes back.

“European Union sanctions explicitly prohibit the provision of these services (servicing, maintenance and insurance) to Russia, while US export restrictions are expected to limit the ability of Russian operators from obtaining aircraft parts," aviation consultancy firm CAPA said in an 8 March report. “Both Airbus and Boeing have halted the supply of spare parts and services to Russia’s airlines operating their equipment. The regional jet manufacturer Embraer is also reported to have stopped supply," it added.

Global distribution system (GDS) companies, who distribute travel products to agents around the world, have also suspended Aeroflot, Russia’s flag carrier airline, from their systems. GDS companies include Sabre, Amadeus and Travelport.

Aeroflot, meanwhile, put off most international flights from 8 March because of Western sanctions. So did other Russian airlines such as S7 Airlines, UTair Aviation and Ural Airlines.

Who can fly high?

All these imply a boon for Indian airline companies. And they want to make the most of the opportunity.

Tata Group-operated Air India, which is the major Indian carrier that operates long-haul international operations, is planning to increase flights to North America in the coming months. A senior official with the airline said the company will add more flights to Europe and the US after 27 March, when scheduled international flights will open after nearly two years of remaining closed because of the pandemic.

India had suspended scheduled international flights on 23 March 2020. However, flights with some countries continued in a limited capacity under bilateral air bubble agreements. Currently, India has air bubble agreements with 37 countries including Afghanistan, Bangladesh, Canada, France, Germany, Japan, Singapore, the UAE, the UK and the US.

On 8 March, the Indian government announced its decision to do away with the air bubble arrangements for international flights and allow normal scheduled operations.

“Currently, Air India has an advantage over other foreign airlines operating long-haul direct flights to North America and Europe as Indian carriers can still utilize the Russian air space for flights, thus saving time and money," the official said, requesting anonymity. “Thus, several new flights will be added on key international routes in the coming months," the official added.

Vistara, a joint venture between Tata Sons and Singapore Airlines, operates several weekly flights to Europe and is currently awaiting the delivery of its new Boeing 787 planes to start operating direct flights to North America.

IndiGo, which flies one in every two domestic air passengers, plans to launch several new non-stop flights to international markets. The airline wanted to expand its international footprint even before the pandemic. It would add destinations in Europe and Asia gradually once the suspension on scheduled international flights is lifted, an official with the airline said.

However, unlike Air India, which operates wide-body planes for long-haul destinations, IndiGo’s Airbus A321XLR, a narrow-body plane, can fly directly to destinations only within six to eight hours away from India.

The cocktail effect

One of the fallouts of the Russian invasion of Ukraine has been on fuel prices. The price of crude oil has skyrocketed as the conflict deepened amid mounting calls for harsher sanctions against Russia.

On Friday, Brent crude traded as high as $111.98 a barrel, up 77% annually.

“One major concern that continues to be a drag on the aviation sector is the aviation turbine fuel (ATF) prices, which have seen a sharp increase of about 57% on a Y-o-Y basis till (early) March 2022. It is mainly attributed to an increase in crude oil prices," credit rating agency ICRA stated in a recent report. “This, coupled with relatively low-capacity utilization of aircraft fleet, will continue to weigh on the financial performance of Indian carriers in FY2022," the report added.

The cocktail of high fuel prices and lesser number of flights have led to a sharp rise in international airfares.

A New Delhi-based travel agent said that airfares for popular international destinations in Europe and North America have risen by anywhere by 30-40% in March 2022, compared to the pre-pandemic period, especially if one travelled by European and American airlines.

According to data from the online travel platform ixigo, international airfares have risen steadily since the beginning of the pandemic. For instance, average round trip fares for a passenger travelling between Toronto and New Delhi in February 2022 was 107,639, up from 73,823 during the year-ago period. Similarly, the average round trip fares for passengers travelling between New Delhi and Madrid in February this year stood at 67,436, up from 48,418 in February 2020.

“Suspension of regular international flights had created a demand-supply imbalance, making international travel expensive under the bubble agreements," said Aloke Bajpai, co-founder and group CEO, ixigo. “Roundtrip international airfares under bubble agreements increased by 20-25% for certain routes as compared to pre-covid fares. With capacity coming back and with an increase in connectivity and more routes, we can expect a dip in international fares in the coming months," Bajpai added.

Here’s an indication of the supply-side problem during the pandemic. While about 4,700 weekly international flights operated to and from India in January 2020, before the covid-19 pandemic spread, the number of weekly international flights that operated under the air bubble agreements totalled only about 2,000 flights a week.

The announcement around normal international operations is therefore a relief to the travel ecosystem. It is expected to give an impetus to international travel to and from India.

Industry experts and senior airline officials expect international flight bookings from India to rise due to a pent-up demand. However, travel to Europe, and North America could be impacted for a few months because of the ongoing conflict in Eastern Europe.

Nevertheless, travel to Asia, including South East Asia, Africa and Australia could rise.

“On the airfares front, fares on popular international routes will be lower than ones under air bubble flights, but considering the high crude oil prices coupled with the Ukraine invasion, airfares going forward is expected to be higher than pre-pandemic levels," said a Gurgaon-based senior airline official who didn’t want to be identified.

He, other airline executives, and even travellers would now like to see an early resolution to the Ukraine crisis. That would calm oil prices and, going forward, can possibly remove the airspace restrictions that are in place now.

Catch all the Politics News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
more

topics

MINT SPECIALS