Issue No. 853
The Cost of War
Russia's Invasion of Ukraine Will Reorder The Global Airline And Aerospace Industries
Pushing Back: Inside The Issue
In the 30 years since the Soviet Union collapsed, the world aerospace and airline industries have gone truly global. Remember when Aeroflot flew a motley collection of aging Tupolevs and Ilyushins, and not the new Airbus A350s and Boeing 777s it flies today? Remember when flights to Asia had to make a tech stop in Anchorage? Perhaps we all grew a little too confident that the world had been truly knitted together since 1991. The week-old Ukraine war has disabused us of this notion.
Global aviation has not been set back to 1991. But many things we took for granted are gone, likely for a good long time. Relatively short flying times to Asia were a casualty of Russia closing its vast airspace to European airlines. Finnair and Lufthansa have said the new routings will add 2-4 hours to their Asia flights, although modern aircraft probably won't need that tech stop in Anchorage. Oil prices are spiking to levels not seen since 2014, just when the airline industry is recovering from two years of Covid-19. Aeroflot flights are taking circuitous routes to the Caribbean to avoid Canadian and U.S. airspace. Although Russians' ability to travel isn't restricted for now, getting to Europe or North America will now require at least one stop along the way. How they will pay for their trips and expenses once they get there is an open question, thanks to the strict sanctions on Russian banks and the Russian government's currency controls.
But further turmoil awaits. EU sanctions on Russia prohibit the sale of aircraft and parts to Russian airlines. Airframers and suppliers have said they will stop supporting aircraft in Russia. And even more worryingly, more than 700 of Russia's 950 or so Western aircraft are leased, and lessors have until March 28 to repossess their aircraft, and Russia's government has ordered its airlines to halt international flights to avoid repossession. Russia's domestic market had been a pandemic-era success story, with 24 percent more traffic last year than in 2019. It's very likely this robust market will grind to a halt in the coming weeks as aircraft require maintenance and parts inventories run down, and especially if Russian airlines comply with the sanctions and return their leased aircraft. Distribution systems are booting Russian airlines from their platforms. And moreover, Russia's economy is in free fall and expected to plunge even further in the weeks ahead, so will passengers even have the financial wherewithal to travel domestically, even if Aeroflot could dust off its Ilyushins and Tupolevs?
Meanwhile, the airline world marches on. The U.S. pilot shortage is forcing carriers, like United, to rationalize their networks, but could present an opportunity to startups like Avelo. Lufthansa thinks the premium leisure trend will hold and is adding new cabins to some of its aircraft. And Ryanair is planning more summer capacity than it operated in 2019.
The Airline Weekly Lounge Podcast
This week in the 'Lounge, Edward "Ned" Russell and Madhu Unnikrishnan discuss the war in Ukraine and many of the ways airlines and aerospace will feel the fallout. They then chew over how the pilot shortage continues to take its toll on U.S. carriers' summer plans. Listen to the episode, and go here for a full archive of the podcast.