The Impact of the War in Ukraine

Aviation is one of the fastest growing industries in the world over the past 50 years. However, we can see how the industry has recently been exposed to different externalities, such as financial crises, pandemics and war.

The Ukrainian airspace is shut, Belarus has banned flights over parts of its territory, while Moldova has also closed its entire airspace. As of end of March 2022, a total of 36 countries, including the US and the UK, have closed their airspace to Russian airlines. In return, Russia banned airlines in most of those countries from entering or flying over its territory. In 2021, international traffic between Russia and the rest of the world represented 5.2% of global international traffic.

Cyprus, Turkey, Poland and Bulgaria had the highest share of total passengers coming from Russia and Ukraine in 2021 (5% to 12%). Meanwhile, several countries are highly dependent on these two countries for their air passenger traffic, especially those neighbouring Russia and Ukraine, and which have not implemented flight bans on Russia. Among them, Tajikistan and Kyrgyzstan are the most exposed.

Ten countries most impacted by the war on demand for air travel

Domestically, Russia’s passenger and freight markets are impacted by sanctions on leased aircraft, spare parts, maintenance, and training. And the level of disruption is likely to become more apparent. In terms of ticket sales, the number fell even 40% below the pre-pandemic levels. It has also led to refunds for previously booked trips, exceeding new ticket sales.

With Russian airspace shut to nearly 40 countries, flights will have to be rerouted or even cancelled. The most heavily impacted markets are Asia-Europe and North America – Asia. The level is even below the one prior to the pandemic, due to the slow international recovery in Asia (mostly China). As a result, air fares have gone up due to the increase in costs associated with rerouting to avoid closed airspace. International ticket sales on aggregate markets have so far held up relatively well. Globally, international ticket sales for future travel fell from roughly 55% of 2019 levels in the days prior to the escalation of the conflict on 24 February, to 50% in early March. That said, bookings made mid-March are already exceeding those prior to the conflict, at around 57% of 2019 values.

Flight bans and sanctions have also caused impacts on the global air cargo market. However, it is possible that airlines in other parts of the world can fill the gap, such as those in the Middle East. Finally, jet fuel prices rose significantly since the conflict began, affecting the airlines’ operating costs, hence profitability.

The aviation sector was still recovering from the Covid-19 pandemic when it was hit by numerous challenges related to the Ukraine-Russia conflict. These impacts show how the Russia-Ukraine conflict is going to heavily shape the future outlook of the aviation sector in many different ways. Coming on the back of a hugely disruptive two years related to the Covid-19 pandemic, the industry's hopes of emerging into a 'new normal' may have to be put on ice.