How Russian airspace closures are changing the Eurasian travel market

On February 28, 2022, just days after Russia launched its deadly invasion of Ukraine that continues to this day, Russia’s aerospace regulator announced the complete closure of Russian airspace to airlines from 36 different countries in retaliation for bans on these mostly Western countries Aeroflot’s behavior. In just a few hours, the global aviation community returned to the Cold War era. When Soviet airspace was closed to all but a few domestic airlines.

In the 1980s and the decades before the collapse of the Soviet Union, there were essentially no direct flights between Europe and Asia, the world's two largest economic centers and most dynamic markets. The range of the aircraft at that time was not suitable for flying around the Soviet Union, so Forced to make stops in remote locations, such as Ted Stevens International Airport (ANC) in Anchorage, Alaska.

After the collapse of the Soviet Union, Russian airspace was opened to Western and Asian airlines for the first time, significantly reducing flight times. The exchanges between Hong Kong and London, Tokyo and Paris, and Frankfurt and Shanghai have become faster than ever, making the two places more closely connected than ever before, helping to promote long-term economic growth and creating a new gold medal for international air travel cooperation. era.

However, this all took a 180-degree turn in February 2022, when Russian airspace was once again closed to Western airlines, forcing airlines to choose long-haul routes across the country. With Donald Trump about to take office, many are beginning to question whether the conflict will end in the coming months and what might happen to airspace restrictions if it does. In this article, we take a closer look at how the geopolitical consequences of Russia’s invasion of Ukraine are fundamentally changing the nature of the Eurasian travel market, and what changes we might see if Russian airspace opens up again.

Aeroflot will undoubtedly play a smaller role than before

Back in 2019, the last year for which we have reliable data, Russian state-owned flag carrier Aeroflot carried more than 37 million passengers worldwide, According to Statista. Although the airline's role in connecting passengers through its central Moscow hub is quite small compared with East-West super carriers such as Emirates and Etihad Airways, it still flies thousands on routes between Europe and Asia passengers.

Before the closure of Russian airspace, the airline had maintained its status as a well-regarded global airline, maintaining full membership in the SkyTeam alliance, which includes global airlines such as Delta Air Lines, Air France and KLM. The airline flies to far-flung destinations such as Los Angeles International Airport (LAX) and Tokyo Narita International Airport (NRT).

However, the airline has since been involved in the illegal theft and re-registration of hundreds of aircraft previously owned by foreign lessors. Companies such as AerCap, which leased extensively to Russian airlines, found millions of planes that had previously been their assets disappearing overnight.

While these lessors were able to recoup some of their investment through insurance claims, they still incurred significant losses as a result, and insurance premiums increased in the long term. Russia has set the precedent that a country, even one that signed the 2001 Cape Town Convention and Protocol that protects lessors' rights, can choose to simply treat foreign aircraft as its own when airspace is closed.

Early signs suggest this could fundamentally change the rental industry in the long term. Now, leasing to countries with geopolitical instability will come with higher insurance premiums and greater risks. Simple Flying recently interviewed Steve Ballard, Managing Director, Check Capital Managementwhich holds a 10% stake in rental giant Aercap. During our conversations, it became very clear to us that leasing aircraft to countries with geopolitical uncertainty will be more expensive than in the past.

Admittedly, the biggest concern here is the Chinese market. There are nearly 2,300 aircraft under lease in China, the vast majority of which are owned by foreign lessors. According to the Morning Star. These aircraft could be at risk if China clashes with the West, and the risk of leasing aircraft to Chinese airlines has become an issue that lessors must contend with.

Aeroflot has been cut off from deliveries of new foreign aircraft and spare parts from certified international dealers, and its fleet is filled with grounded planes. Some airlines have even turned to dismantling to maintain their fleets, which involves deliberately grounding some aircraft to use their parts to keep others flying. Even if Russian airlines are allowed to fly to Western countries again, their existence will be just a shell.

Chinese airlines have recently enjoyed a competitive advantage on Europe-Asia routes

Over the past three years, European airlines have had to detour through Russia when connecting Asian destinations to European hubs, significantly increasing operating expenses and making airfares less competitive. Flights from Europe to Asia, already very expensive, are now even more expensive to operate due to the extra fuel required due to Russian aerospace regulators imposing fees on flights over the country.

Chinese airlines, along with Hong Kong-based legacy carrier Cathay Pacific, are able to continue flying over Russia, giving the airlines a significant advantage on many east-west flights. Not only can airlines save a lot of fuel by offering shorter itineraries that don't have to go around Russia, but China's three major airlines – China Eastern Airlines, Air China and China Southern Airlines – can offer passengers faster and more attractive flights. journey.

As a result, these airlines can offer better prices to travelers flying from Europe to Asia (and vice versa), European airlines were quick to complain. Sometimes, passengers may even save time by taking a connecting flight from China rather than taking a direct, circuitous flight with a traditional European airline.

If Russian airspace is opened to Western airlines again, the biggest losers will undoubtedly be Chinese airlines, which will lose their main competitive advantage in the market. Legacy airlines in Europe, as well as Asian airlines from Western-friendly countries such as Japan or South Korea, will gain significant competitiveness gains from their current positions.

So are European airlines really at their best?

While some may believe that European airlines will return to 2019 levels of market dominance on Europe-Asia routes, it is worth noting that the nature of the market has completely changed. Businesses, flying less and less between offices in Europe and Asia, are learning how to get rid of the hassle of new ultra-long flights.

The shift to a remote work environment during the pandemic has forced employers to move away from business travel, while leisure travel between Europe and East Asia (with some exceptions) may be hampered by heightened geopolitical tensions in both regions. There are many reasons to believe that even if airspace restrictions are lifted, European airlines may not be able to regain dominance in this lucrative market.

So what's the bottom line?

Ultimately, the closure of Russian airspace resulted in a fundamental restructuring of the Asia-Europe aviation market, with long-term consequences for both European and Asian airlines. Russia's domestic and international aviation industry was devastated by the war, meaning that Russian airlines may not play an immediate important role in postwar flights between Europe and Asia.

Chinese airlines currently enjoy the best environment following this shutdown, but they will have to face stiff competition from European airlines if Russia once again allows European airlines to fly over its territory. Still, we can't clearly predict the Kremlin's actions, and only time will tell what flying between Europe and Asia will look like after the conflict in Ukraine is likely to end.