Russian sanctions cut back and forth for air freight
The fallout from the tit-for-tat air sanctions following Russia’s invasion of Ukraine is beginning to impact the air cargo and airline sectors, with Russian airspace now off limits to most western carriers.
Finnair said on Thursday it was considering additional furloughs of up to 90 days after having to reduce flight activity because its planes can no longer land or fly over Russia. From 90 to 200 pilots and 150 to 450 cabin crew could be affected from April. Final decisions depend on the evolution of the situation and the alternative measures that can be implemented.
Employees working at Finnair stations in other countries could also face temporary layoffs.
“I think it persists. Vladimir Putin cannot start this and not finish it. You are going to see a prolonged period of rising fuel prices and slowing economic growth around the world because of this. So we’re expecting some pretty tough headwinds for airlines around the world as the consumer is going to be hit in the wallet and they’ll have less money to spend on discretionary flights,” said George Ferguson, senior analyst at airlines and aerospace companies at Bloomberg Intelligence, in an interview.
Russia has banned Finnish planes from its airspace until May 28 after the country, along with other Nordic and Baltic countries, Canada, the European Union, the United Kingdom and the United States, blocked Russian planes from their airports or airspace.
Finnair has canceled all flights to Russia and flights to China and South Korea until Sunday.
“With the closure of Russian airspace, there will be fewer flights by Finnair and unfortunately less work available for our employees,” chief operating officer Jaakko Schildt said in a statement. “A large proportion of our staff have been on extended leave during the pandemic, so the need for additional leave seems particularly difficult, and we apologize for that.”
After initially canceling flights to Tokyo on Tuesday, Finnair said it would resume four times weekly operations from Helsinki starting next Wednesday as Japan is one of its most important markets.
“Japan is also an important freight market, and air links are necessary to ensure the transport of freight,” said commercial director Ole Orvér.
Passenger and cargo traffic between Asia and Europe plays an important role in Finnair’s network. Before the pandemic, more than half of Finnair’s revenue came from this market. Many Asian countries have restricted travel since the COVID outbreak, but Finnair has operated many of its Asian routes buoyed by strong cargo demand. The company even removed seats from an Airbus A350 to create space for light cargo in the cabin.
A detour around Russia can add 30 minutes to an hour for all-cargo carriers connecting Asia and Europe, but the location of Finland and Sweden adds significantly more time to Finnair than with direct links over Russia.
For Finnair, more circuitous routes can add several hours to flight time and higher prices for jet fuel combined with a longer route make it difficult to break even.
The Russian-Ukrainian war has pushed the price of jet fuel to over $111 a barrel, up 4% from a month ago and 57% from a year ago, according to the latest data releases. Friday by the International Air Transport Association.
Finnair continues to fly to Bangkok and Phuket, Thailand, Delhi and Singapore with a longer route that avoids Russian airspace. Thailand is also served from Stockholm.
Officials say they are evaluating an alternative network plan for China and South Korea in case the closure of Russian airspace is prolonged.
United Airlines (NASDAQ: LAU) temporarily suspending routes to Delhi and Mumbai, India from Newark, New Jersey, and other US hubs until it can devise viable alternative routes, according to The Points Guy website.
American Airlines (NASDAQ: AAL) also competes on the New York-Delhi route but has never crossed Russian airspace. Instead, its planes refuel in Bangor, Maine. It’s unclear if United are considering a similar option.
The closure of the Russian and Ukrainian passenger markets represents less than 2% of that of Lufthansa (DXE: LHA) summer capacity and only a small portion of passenger flights to China, Korea and Japan will have to detour, CEO Carsten Spohr told analysts on an earnings call on Thursday.
Airline sanctions are negatively impacting air cargo capacity, which is still struggling to catch up with pandemic-related cuts by passenger airlines providing cargo space, in several ways.
Using less direct flights means aircraft may have to carry more fuel, reducing the payload weight available for cargo. Spohr, however, said it made more sense for a cargo plane to make an intermediate stop for fuel than to leave the cargo behind.
Canceling passenger flights eliminates belly space for cargo. And Volga-Dnepr, a major Russian air cargo operator, is no longer available for charter by Western companies.
Volga-Dnepr operates a fleet of large freighters with ramps that can accommodate unusual types of cargo, such as subway cars, as well as large cargoes of general cargo. Its AirBridgeCargo subsidiary has 17 wide-body Boeing 747s and one 777 that can no longer fly to three dozen countries. New European Union and United States export controls for dual-use technologies will prevent the company from obtaining the parts and maintenance support needed to keep planes airworthy.
Additionally, sanctions cutting off Russian banks from the SWIFT international messaging system will make it difficult for customers around the world to make payments for charter flights or LTLs, effectively eliminating the airline group from the market.
AIT Worldwide, a Chicago-based third-party logistics provider, “disabled” Russian-based carriers in its system on Friday, days before the ban on U.S. airspace, said Greg Weigel, chief commercial officer of AIT Worldwide. , to FreightWaves in an email.
Ukraine-based Antonov Airlines operates a few of its giant AN-124 freighters of the same type in the Volga-Dnepr Airlines fleet outside the war zone. Other planes of its fleet are trapped in Kiev.
Air cargo trucking services could also be affected. Ukrainians formed a large part of the trucking force in Europe and many decided to return to their home country, said Niall van de Wouw, managing director of Clive Data Services, a benchmarking and analytics firm. air freight.
Experts say the sanctions will eventually wipe out Russia’s commercial airline fleet, which is heavily focused on Boeing and Airbus. Boeing said it was suspending parts, maintenance and technical support from Russian airlines and halted operations at its Moscow training center in response to the invasion of Ukraine. And Airbus followed suit on Wednesday, saying it would stop supporting companies such as Aeroflot, SkyNews in London reported.
Lufthansa will not only feel the impact of lost revenue from flight cancellations and rising fuel prices, but also the loss of maintenance services provided by Lufthansa Technik for Russian airlines, Spohr said. Some of the extra costs of re-routing around Russia will be offset by not having to pay an overflight fee to cross Siberia.
Retaliation from Russian airspace against the United States would force airlines such as Atlas Air (NASDAQ: AAWW), FedEx (NYSE: FDX) and UPS (NYSE: UPS) to take a more southerly route for trans-Pacific destinations, adding 30 to 45 minutes per flight, said Neel Jones Shah, global head of air cargo at logistics company Flexport.
Although air freight demand and rates from Asia have softened because China’s COVID crackdown has temporarily slowed factory production, freight forwarders say rates are rising rapidly due to flight cancellations and fears that they might last. With jet fuel prices at their highest level since 2015, many airlines were already adding fuel surcharges to their freight bills before the outbreak of hostilities.
Freightos Airline Index shows China-Europe fares soared more than 80% last week to $11.36 per kilogram.
Meanwhile, a few carriers are beginning to introduce a wartime surcharge, according to European 3PL DSV and other sources. Some airlines are considering implementing a wartime surcharge on cargo shipments, Weigel said. Most logistics specialists FreightWaves contacted said they hadn’t seen the charges yet and Bloomberg’s Ferguson said cargo airlines are more likely to just roll them into the tariff because they have the power to price fixing.
Biden bans Russian planes from US airspace
Crisis in Ukraine creates logistical headaches for air cargo and airlines
Sanctions squeeze Russian carrier Volga-Dnepr and its air cargo capacity