International Airlines Are Leaving Ukraine’s Airspace. What’s Next?

The day before, the Minister of Infrastructure Oleksandr Kubrakov stressed that the panic in the air transportation market of Ukraine arose due to information escalation, and not due to the presence of real threats to flights.

However, the information injection alone turned out to be enough for a number of Western airlines to cancel their flights to Kyiv and other Ukrainian cities last week. Among them are the Dutch KLM , the Norwegian Norwegian, the German Lufthansa , the Austrian Austrian Airline , the Swiss Swiss , the French Air France , the Spanish Vueling and the multinational SAS .

They all attribute their decisions to military tensions and the threat of Russian invasion. The list of foreign carriers that refused to fly to Ukraine may become even larger, given Russia’s decision to recognize the fake republics of Donbass .

Meanwhile, Ukrainian airlines, at the request of aircraft owners, were forced to withdraw some ships from the airspace of Ukraine, sending them abroad.

To do this, the Cabinet has allocated 16.6 billion hryvnias to compensate for insurance risks, but even these measures are not able to completely calm the market. The flights of Western airlines have already been taken over by Ukrainian carriers.

With what losses will the period of turbulence in the air transportation industry pass and will Ukrainian companies be able to replace Western operators on flights?

Western airlines suspend flights

At the beginning of the information escalation, British companies suspended insurance of aircraft that are on the balance of Ukrainian carriers, citing the threat of war. The planes of Western companies suffered much less from this.

This means that the problem with insurance is not the only reason for refusing to fly in Ukrainian airspace. The official wording of Western companies’ refusal to fly to Ukraine is security concerns.

At the same time, neither Ukrainian nor foreign regulators issued an official warning about the danger of flights over Ukraine. That is, airlines alone weigh the possible risks and decide not to fly a certain route.

Why then do some companies completely cease their activities, while others continue to operate “until the rockets fly” ?

The fact is that some Western airlines work with Ukrainian under an interline agreement. Experts believe that security issues are a good reason for them to abandon unprofitable routes.

What is interline? Suppose there is a conditional route Kiev – Paris – Rio de Janeiro. To encourage passengers to fly this flight, companies are cooperating and making heavy traffic to reduce waiting at airports.

For example, five planes fly from Kyiv to Paris every day. Three – Ukrainian company and two – French. In this way, passengers are transported to Paris, and then the French company sends them to Brazil and back.

In a stable situation, it works mutually beneficially. Both companies make money from the flow of passengers who enjoy a profitable and convenient three-link flight, which they have created through joint efforts.

However, the “low season” in air transport is currently much lower in winter than in the summer months, due to high oil prices, a global decline in travel due to the coronary crisis and a decrease in passenger traffic to Ukraine due to political tensions. flights have become unprofitable “, – explains one of the interlocutors from the aviation industry.

According to him, now Western companies are refusing to fly to Ukraine because they want to avoid unprofitable flights on interline routes, and use security issues as an excuse.

“Western companies will make money on” their “flights, and” foreign “ones will suffer losses. – he said.

Flights carried out by Western companies are now being flown by domestic carriers. The Ministry of Infrastructure is convinced that thanks to this, nothing has changed dramatically in Ukrainian air transportation.

In contrast to companies that cease operations in Ukraine, there are other foreign carriers that try to stay on the market because it is strategic for them. Even the temporary loss of the market will be economically unprofitable for them, and therefore the issue of security is not so acute.

Previously, the profits of individual low-cost carriers were kept on the transportation of tourists and workers in various proportions. After the pandemic, the number of tourists around the world has decreased significantly, so they are interested in preserving markets with a high level of labor migration, including Ukrainian.

Will Ukraine have enough planes? 

According to Avianews , the demands of aircraft owners to withdraw aircraft from Ukraine led to the fact that the fleet of domestic carriers was reduced by 14 aircraft.

The small carrier Bees Airline, which temporarily lost all four of its aircraft, suffered the most. The company is still hiring other operators to transport passengers.

As of February 18, the UIA fleet is active – 12 aircraft, SkyUp – 7 aircraft, Windrose – 8 aircraft, Azur Air – 10 aircraft. Some of them make 4-6 flights a day to keep the industry running normally.

“As Ukrainian companies are now able to cover the needs of the market, their potential should continue to be sufficient,” said aviation expert Bohdan Dolince in a comment to the EP.

This does not mean that Ukrainian airlines will now receive extra profits, and all the most difficult will be left behind. The planes of the largest Ukrainian operators are still leased, and shipowners may again demand their removal from the country if the situation worsens.

For example, SkyUp has been able to use aircraft subject to daily revision of agreements with the insurance company. This means that insurers may one day suspend military risk insurance if they consider the situation in Ukraine threatening.

Airlines are forced to work in view of this scenario.

“The aviation business requires a long-term planning horizon. If carriers plan their actions in just a few days, it increases the cost of the company’s work and complicates its operations.

In fact, the carriers are in the same conditions as they were before the lockdown in the spring of 2020, when no one understood how long the shutdown would last. Due to the fact that the companies could not optimize their work in the conditions of instability, they lost tens of millions of dollars every day, “Bohdan Dolince said in a comment to the EP.

According to an EP source in the field of aviation insurance, rates for military risk insurance have already increased for all carriers. Despite the possibility of flying on special conditions, the situation in Ukraine is considered dangerous, and therefore shipowners will have to pay insurance companies a risk premium.

The increase in the cost of insurance may vary depending on the conditions and the specific company. Sooner or later, this will affect the cost of air tickets, but it is unlikely that in the short term it will be a significant amount.

How effective are government measures

The Ukrainian government responded quickly to the threat. At an extraordinary meeting on February 13, the Cabinet of Ministers issued an order allocating UAH 16.6 billion to ensure flight safety in Ukraine for insurance, leasing companies and air carriers

In fact, the government has set up an additional guarantee mechanism for insurers and aircraft owners in the event of a shipwreck. The state acts as a reinsurer for planes in the fleet of Ukrainian companies for the period of threat.

These guarantees apply to 23 vessels of Ukrainian airlines that are under threat of termination of insurance and withdrawal from Ukraine.

The effectiveness of government measures can be assessed by two criteria. The first is the number of “rescued” aircraft. The second is the current general state of the industry.

It is now known that not all aircraft on the list were returned to Ukraine. 

At the same time, the potential of existing aircraft is now sufficient to ensure the stable operation of the industry without significant changes in the market. 

According to the Ministry of Infrastructure, flights to Ukrainian airports are currently operated by 29 foreign and 7 domestic airlines. The authorities informed the insurance and leasing companies that in case of warnings from the armed forces, Ukrainian personnel are ready to bring all aircraft to safe areas within an hour. 

Key airports are operating normally. In the future, everything will determine the degree of escalation with Russia, but Moscow is doing everything possible to make the military threat even more real. 

The key airports are operating normally and everything will continue to determine the degree of escalation with Russia, but Moscow is doing everything possible to make the military threat even more real.