Yahoo Finance Travel industry braces for impact of Russia-Ukraine conflict
Pandemic weary travelers may face longer flights and higher ticket prices as the airline industry battles sky-high oil prices and travel restrictions due to the Russia-Ukraine crisis.
Airlines are bracing for potentially lengthy blockages of key East-West flight corridors after the European Union, Canada and Moscow issued reciprocal airspace bans this week in response to Russia's invasion of Ukraine. The U.S. has not ruled out similar actions.
The sanctions have sparked flight cancellations and costly detours, denting the airline industry's pandemic recovery.
Scott Keyes, founder and chief flight expert at Scott's Cheap Flights, told Yahoo Finance Live that passengers could wind up getting squeezed.
“If you are flying to Asia, most of those flights transit Russia. It's the quickest way,” Keyes said. “For instance, a nonstop flight from New York City to New Delhi, let's say, in India goes directly over Russia. Those types of flights will likely have to reroute, have a technical stop in somewhere like Istanbul or Dubai en route, and that's going to mean a longer flight, more connections, more pilot hours, and likely, a higher price for those flights.”
When asked by reporters if the White House would impose an airspace ban on Russia, spokesperson Jen Psaki said, “There are a lot of flights that U.S. airlines fly over Russia to go to Asia and other parts of the world and we factor in a range of factors.”
A move by the U.S. to ban Russian planes is expected to provoke a response from Moscow, which could impact carriers like United Airlines (UAL), which uses Russian airspace for flights from Delhi. American Airlines (AAL) has already said it will not use any Russian airspace for international flights and will suspend interline deals with Russian carriers Aeroflot (AFLT.ME) and S7 Airlines indefinitely.
Skyrocketing oil prices are also putting pressure on airline ticket prices, since jet fuel is the industry’s second largest expense after labor. Oil prices were already trending higher before the Russian invasion of Ukraine following a strong economic recovery that was sparked by the lifting of post-pandemic lockdowns. The Ukraine crisis has stoked supply fears, sending Brent crude (BZ=F) — a global benchmark — above $100 a barrel.
Keyes said sustained oil prices above $90 a barrel (now surpassing $100 a barrel) will ultimately show up in the form of higher ticket prices.
“There's no airline that doesn't rely on jet fuel to fly its planes. They are all exposed to the price of oil," he said. "Even if they bought oil for the next few months, they've already locked in their price now.”
Cargo traffic snarls
Airspace shutdowns and flight cancellations have also started to affect cargo traffic, adding to global supply-chain issues. Many cargo carriers use Russian airspace, which is a major intersection for global trade.
U.S.-based United Parcel Service (UPS) and FedEx Corp (FDX), two of the world's largest logistics companies, recently joined German-based Lufthansa Cargo in halting deliveries to Russia.
“If we enter a new Cold War or something along those lines where there is significantly diminished trade between Russia and the West, that is going to have a major impact on aviation supply chains,” Keyes said.
“The landing gear for many of the wide body jets used by Boeing (BA) and Airbus (AIR.PA) and others is sourced through Russian titanium, and that titanium is critical for building new airplanes. And yet, their supply chains are not exactly diversified at the moment. They're wholly reliant on a couple of different Russian companies, so a prolonged war could really start to show up in airplane production over the next few years,” Keyes said.
“Will that come to pass? I think it largely depends on the course of the war, but this is something that I can guarantee you executives at Boeing and Airbus are monitoring closely,” he added.
Alexis Christoforous is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AlexisTVNews.
