Ukraine crisis creates logistics headaches for air cargo, airlines

Date: Wednesday, March 2, 2022
Source: Freightwaves

Airspace restrictions from the economic war between the West and Russia over the invasion of Ukraine is adding logistical complexity and cost for the air cargo sector and passenger airlines still coping with COVID-related ups and downs in business activity. The conflict is also driving up the price of fuel, which represents a quarter or more of airlines’ cost base.

The European Union, Canada, the United Kingdom, and Baltic and Nordic states in recent days have barred all Russian-owned, -registered and -controlled aircraft from overflights of their territories. Russia has responded, banning three dozen airlines from its airspace.

The new rules will require carriers to take more circuitous routes to avoid airspace around Russia, as well as Ukraine, Belarus and Moldova, to avoid the possibility of accidental missile strikes.

Routes over Russia between Asia and Europe are optimal for many airlines in terms of the shortest flying time and fuel consumption. Swinging north, or more likely, south through the Middle East and up into Southern Europe will be less efficient but can be done by many carriers without too much difficulty, according to air logistics professionals.

“It by no means shuts down an air corridor between Asia and Europe. It just gets a little more complicated to fly it,” said Neel Jones Shah, a former cargo chief at Delta Air Lines (NYSE: DAL) who now heads global airfreight for Flexport, a fast-rising freight forwarder headquartered in San Francisco.

Some airlines are canceling flights because of the additional transit times while they figure out how to adjust to the new circumstances.

Finnair said it is canceling passenger and cargo-only flights to Seoul, South Korea; Tokyo; and Shanghai and Guangzhou, China, through Sunday. Flights to Hong Kong are canceled until the end of March. The airline continues to operate flights to Thailand (from Helsinki and Stockholm), Singapore and Delhi using alternative routes that lengthen flight time by about an hour.

The company said it is withdrawing its financial guidance for the first quarter and demand expectations for the first half of 2022 because of the negative impact the Russian airspace closure could have on air traffic between Europe and Asia.

“Bypassing the Russian airspace lengthens flight times to Asia considerably and, thus, the operation of most of our passenger and cargo flights to Asia is not economically sustainable or competitive,” Finnair CEO Topi Manner said in a statement.

Virgin Atlantic said avoiding Russia would add 15 to 60 minutes on flights between the U.K. and India and Pakistan, according to the BBC.

The U.S. government is considering whether to block Russian carriers from its airspace, but hasn’t made a decision yet. Reuters reported Tuesday that EU officials are talking with the Biden administration about extending the flight bans.

United Airlines (NASDAQ: UAL) continues to fly over Russian airspace from Newark, New Jersey, and San Francisco to India, while its U.S. peers have diverted to other routes, Bloomberg reported.

Kazakhstan has increased in popularity as a stopover point in recent days. Reuters said flights to Almaty airport have tripled as airlines look for economical detours between Europe and Asia.

Jones Shah predicted most freighters will take the southern track, noting that the Middle East is a good place to refuel and that airports in Dubai, Abu Dhabi and other locations have plenty of capacity to take more flights.

Middle Eastern carriers such as Qatar Airways, Emirates, Etihad, Saudia and Turkish Airlines could pick up market share out of China, where they already operate about 20 to 25 flights per week, Seko Logistics said in a customer notice.

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