The air transport industry is affected by the situation in Ukraine
The reduction of Covid-19 pandemic restrictions led the air transport industry to look toward 2022 with optimism. However, the military conflict between Russia and Ukraine has cast a long shadow over the recovery expectations of the tourism industry and airlines in Europe and the US. Sanctions imposed by Western countries are already impacting travel and will create additional costs for the affected airlines.
At the end of 2021, Bank of America estimated that due to the recovery, the reduction of pandemic restrictions, and the increase in travel during the summer months, jet fuel demand could drive oil prices to $120/barrel. Now, oil is already near $120/barrel, but not because of full planes, but due to concerns regarding supply disruptions.
Jet fuel prices increased by over 60% last year and are up 5.1% compared to last month.
Fuel represents 19% of the total expenses of global airlines, prior to the recent price increases.
According to an eToro analysis, the increase in fuel costs for airlines—just as they are recovering from the demand destruction induced by the Covid pandemic—could lead weak companies toward bankruptcy.
In January of this year, airline industry forecasts for 2022 considered a global revenue of $432 billion in the base-case scenario of activity recovery, representing 65% of 2019 revenues. By the end of the year, global air transport demand could return to 84% of 2019 levels in the base-case scenario.
Demand for air cargo was 6.9% above the 2019 level last year, according to IATA. However, air cargo is the most affected by the situation in Ukraine, which adds to the already existing problems in the supply chain.
Finnair and Virgin Atlantic have already canceled cargo flights from North Asia due to airspace closures, while other companies are trying to adjust their routes. But this comes with business losses and additional costs.
Russian carriers, which account for approximately 70% of flights between Russia and the EU, are the most affected. Taking advantage of the fact that the Russian fleet of Antonov AN124 cargo planes has remained grounded, and the destruction of the world’s largest cargo plane, the unique Antonov AN 225, Airbus (AIR.PA) is transforming its existing fleet of Beluga super-giant aircraft into a transport fleet, offering logistical air transport services for oversized cargo.
Frequently Asked Questions
How has the conflict in Ukraine affected jet fuel prices?
The conflict has driven oil prices near $120 per barrel due to supply disruption concerns, causing jet fuel costs to rise significantly, adding to a 60% increase seen in the previous year.
Which sector of aviation is most impacted by the current geopolitical situation?
Air cargo is the most affected sector due to airspace closures and supply chain disruptions, forcing airlines like Finnair and Virgin Atlantic to cancel or reroute flights.
What is the outlook for airline recovery in 2022?
While initial forecasts predicted a recovery to 84% of 2019 demand levels, rising fuel costs and conflict-related disruptions now threaten the stability of weaker airlines.