Contributor - Middle East

Peter Shaw-Smith

Tit-for-tat airspace closures by the U.S., UK, EU, and Russia continue to augment concerns about incremental reductions in global air cargo capacity. Meanwhile, ever-rising jet-fuel prices will increasingly eat into airline and freighter profits as the Russia-Ukraine crisis continues. Airlines with core routes between Asia and Europe appear most affected, but other regions could start to get involved in a prolonged or expanded confrontation.

 


Even operators that have continued passenger service along the&nbsp;corridor have suffered, because the new routes skirting Russian airspace have meant significantly longer flights, requiring the carriage of more fuel and affecting&nbsp;weight&nbsp;restrictions. “The higher air cargo rates are further amplified by the higher fuel costs, which are likely being passed on to the customer,” Aerodynamic Advisory’s Mike Stengel told AIN.

 


Given the critical importance of the Asia hub to global air freight, Asia-Pacific airlines’ operations remain key. “The Ukraine crisis has resulted in cancellation and rerouting of flights, which would cause cargo operations to be severely constrained by fewer flights and less payload to meet the demand for air cargo,” Subhas Menon, director-general of the Association of Asia Pacific Airlines (AAPA), told AIN. “Supply chains are likely to be severely affected in the short-to-medium term.”

 


Ocean and air freight carrier Maersk’s March 4 Russia-Ukraine update&nbsp;said it had suspended all new air bookings to and from Russia and Ukraine until further notice. “We do see a potential risk to the cost of air transportation, as airspace gets restricted and flights are further subject to rising fuel and insurance costs,” it said.

 


“It's clear that as the aviation industry&nbsp;gradually emerges from the impact of the Covid-19 pandemic, it has been thrown another global catastrophe to deal with,” said Christopher Jackson, aviation partner at law firm Reed Smith. “The air freight industry has been a beneficiary, in many respects, of the pandemic.&nbsp;However, the situation in Ukraine is likely to have a much less positive impact on the industry.”

 


In the short term, the crisis had given rise to capacity constraints, as Russian cargo operators, such as AirBridgeCargo, were forced out of UK, EU, and U.S. airspace. Overland and shipping services have also felt the effects,&nbsp;as economic sanctions and restrictions on Russian ships docking at ports&nbsp;have started to bite. “Together, this is likely to give rise to significant increases in air freight rates,” Jackson said.

 


The impact of the crisis has prompted Finnair Cargo to cease operating certain flights to East Asia for the time being, and other operators appear&nbsp;likely to follow suit.

 


Finnair said Monday that it continues&nbsp;to update its traffic program in light&nbsp;of the closure of Russian airspace. Despite longer flight times, it said, increasing air freight rates mean&nbsp;it can continue passenger services to key Asian markets. “Finnair continues to serve Seoul and Shanghai from its Helsinki hub," the airline announced, but it said that it has&nbsp;canceled flights to Osaka and Hong Kong until the end of April.

 


Finnair now operates&nbsp;one weekly flight to Shanghai&nbsp;and&nbsp;three to Seoul. It avoids Russian airspace, increasing flight times to between 12 and 14 hours, depending on direction. Both routes skirt Russian airspace from the south, while the return Seoul-Helsinki legs take the northern route.

 


Finnair announced earlier this week that it will continue to fly to Tokyo, avoiding&nbsp;Russian airspace, with four weekly flights as of&nbsp;March 9. The carrier also continues to fly to Bangkok;&nbsp;Delhi, India; Phuket, Thailand; and Singapore.

 


Capacity constraints and increased costs would affect consumers and companies alike, as any issues with a company's ability to access supplies would ultimately lead to delays in the production of goods and increased costs.&nbsp;“Set against a backdrop of inflation across Europe and general political and financial market instability, this may well impact the growth of air cargo demand,” Jackson continued.

 


OEMs were likely to be particularly affected by supply-chain issues, as Russia has been a large and important exporter of titanium, a metal used extensively in the industry because of its strength and lightness.

 


Unfulfilled aircraft orders for Russian operators will also create difficulties. As of Dec.&nbsp;31, 2021, Boeing had six&nbsp;777F orders outstanding with Russian carrier Volga-Dnepr. “Clearly, Boeing will not proceed with any such orders and, to the extent aircraft are&nbsp;already built, it will have to find homes for them, which, in the current environment, could be problematic,” Jackson said.

 


Simon Wong, a partner at law firm Stephenson Harwood in Hong Kong, said that before Covid-19, many logistics companies had experienced difficulties financing freighter aircraft due to market-value fluctuations. “Now, suddenly, they are popular with lessors and financiers,” he noted. “Airlines in North Asia, in particular, are weathering the storm thanks to cargo as there are still exports to be shipped.”

 


International air cargo volumes at Asian airports rebounded last year compared with&nbsp;2020, partly due to shippers switching modes as a result of extensive disruption to ocean freight, Maersk said.

 


“At Hong Kong,&nbsp;which has traditionally been the world’s busiest international air cargo airport, volumes recovered to five million tons in 2021, close to the record 5.1 million tons in 2018," Maersk noted.&nbsp;"Seoul’s Incheon Airport recorded a record high of more than three million tons in 2021, while Taipei and Narita also achieved new cargo records of more than 2.5 million tons for the first time.”

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