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The skies have turned unfriendly amid the Ukraine-Russia conflict — and the situation could affect the prices Americans pay for everything from electronics to pharmaceuticals to imported food.
On Monday, Russia’s aviation authority announced it had closed its airspace to airlines from 36 countries, including the 27 members of the European Union, and Canada. The move represented retaliation after multiple countries had announced they would close their airspace to Russian airlines amid the Ukrainian conflict.
Even before Russian forces invaded Ukraine, airlines had begun avoiding flying over the region. The latest conflict served as a grim reminder of the tragic crash of Malaysia Airlines Flight 17 in Eastern Ukraine after the plane was shot down just miles from Ukraine-Russia border amid civil war in the region.
“The disruption to global airspace impacts airlines that are responsible for carrying up to 22% of the world’s air cargo.”
But the latest round of airspace jockeying promises to have even more far-reaching effects on the global economy. That’s because of the growing role airlines play in shipping cargo across the world. According to a report from the International Air Transport Association (IATA), $6 trillion in goods is shipped by plane each year, representing 35% of world trade.
For airlines the cargo business has grown to become a more important revenue stream, especially amid the COVID-19 pandemic. Cargo now accounts for a third of airline revenues, according to IATA.
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“As passenger volumes fell off, airlines really started to rely on cargo as a revenue stream,” said Madhu Unnikrishnan, editor of industry newsletter Airline Weekly. “And that’s been boosted by the fact that maritime traffic cargo is so snarled.”
Air cargo is transported by a range of airlines, including carriers that also serve passengers and ones that specialize in shipping. The airspace closures present a range of complications for both sets of airlines. All told, the disruption to global airspace impacts airlines that are responsible for carrying 20% to 22% of the world’s air cargo, said Guillermo Ochovo, a consulting analyst with Cargo Facts Consulting.
For starters, flights originating in Europe or Asia that previously traveled over Russia will need to reroute, which can add hours to the travel time. That necessitates more jet fuel — which not only adds to the cost of each flight for the airline, but also reduces the amount of cargo that can be carried on each aircraft due to weight considerations. Those costs will likely be passed on to the consumer.
“Flights originating in Europe or Asia that previously traveled over Russia will need to reroute, which can add hours to the travel time.”
Another issue is flight cancellations. For instance, Finnair
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canceled flights to South Korea and China after it was blocked from operating in Russian airspace. The low passenger demand to and from these locations is a silver lining for airlines, Unnikrishnan said, as they won’t lose much in the way of passenger business from making such decisions. But it reduces the capacity for cargo shipping even further.
“Obviously with global supply chains already hit hard by the pandemic, these will face increasing disruption and cost pressure” as a result of the geopolitical tensions, Ochovo said.
The effects of these cargo disruptions will be most acutely felt in Europe, Ochovo said, given that flight routes to and from Asia are seriously impacted by the Russian ban. Nevertheless, the effects on global trade mean that Americans could see higher prices as a result, experts said.
Also see: This is how America’s booming demand for goods shattered the supply chain
The products this situation could affect are wide-ranging. A prime example is cars and semiconductors, Unnikrishnan said. “A lot of high-value car parts go by air — they’re flying from Asia to North America and Europe over Russia,” he said. “So now they’ll have to go the polar route over Anchorage and that’ll add time and therefore cost.”
Manufacturers could opt in some cases to transport items by sea instead, though that takes longer and delays at major ports could become a factor. For products like perishable food or fresh-cut flowers, there isn’t an alternative available.
An open question in this situation, though, is whether the costs of this also will eventually be passed along to the airlines’ passengers, including those flying on other routes. And the answer to that question could come down to how long the conflict between Russia and the rest of the world remains at an impasse.
“They can’t surcharge customers have already booked,” said Robert Mann, president of R.W. Mann & Co., an airline consulting firm. “But if this continues, my guess is they will try to recover these costs in the form of fuel surcharges and fares from future customers.”
The individuals most likely to be impacted by these higher fares are business travelers, Mann said, which could in turn hamper the recovery of global business travel.
