The extra cost from rerouting hundreds of airliners around Ukrainian airspace, shut down following the downing of a Malaysian Air flight last week, is set to translate into higher ticket prices for passengers.
"If you lengthen routes, you use more fuel so it is more costly," Air France-KLM Group Chief Executive Officer Alexandre de Juniac said in Paris today. "At the end of the day, we will have to increase slightly the price of the ticket on those routes. I think that is perfectly fair."
Contact information ( * required )
The closing of the air space over eastern Ukraine has cut off a popular artery connecting western Europe with the Middle East and Asia. Hundreds of airliners now snake through Russia along the Ukrainian border or pass over Turkish air space, incurring extra cost for fuel, maintenance and crew hours that pile up expenses for an industry already grappling with razor- thin profit margins.
Airlines may incur about $1.5 million in additional spending for the Ukrainian detours each week in total, based on calculations by aviation experts at ICF International Inc. The estimate is based on the assumption of 800 flights rerouted over Russia instead of Ukraine, of which 80 percent are wide-body aircraft, and 15 minutes of extra time in the air per flight.
Beyond direct operating expenses, overflight charges levied by traversed regions come on top. For a Boeing Co. 777-200ER, the model Malaysian uses for its Amsterdam-Kuala Lumpur service, that cost can be $8,370 each hour, said Patrick Cropper, an analyst at Fairfax, Virginia-based ICF International. Flying a narrow-body plane for an hour may cost about 60 percent less.
Operating profit margins, measured by earnings before interest and taxes divided by revenue, amounted to 1.1 percent for airlines in Europe last year, and will rise to 1.9 percent this year, the International Air Transport Association forecast in March. That gives Europe's carriers the second-lowest profitability after airlines in Africa, Iata said.
Ukraine authorities closed the air space around Donetsk, close to the Russian border, on July 18, a day after MH17 carrying 298 people crashed after a suspected missile strike. Ukraine's sky had been used by about 1,700 flights each day earlier this year, and that number is down to about 600 now, said Brian Flynn, a senior manager at Europe's navigation agency Eurocontrol. The balance is flights that have since been suspended, or are being rerouted every day, he said.
Deutsche Lufthansa AG, Europe's second-largest airline behind Air France-KLM, said it now routes many of its flights to and from Asia over Bulgaria, Turkey, southern parts of the Black Sea, Georgia and Azerbaijan, adding flight time the pilots cannot fully compensate for with other measures.
Airlines reroute around particular regions every day, for reasons that vary from weather to traffic or local capacity to safety situations. In comparison to total cost, its detour expenses are "negligible," Lufthansa said.
Carriers from the United Arab Emirates, which include Emirates and Etihad Airways PJSC, do not fly over Israeli air space, as there are no trade relations with the country, UAE General Civil Aviation Authority Director-General Saif Al Suwaidi said.
While there is a noticeable increase in air traffic over Turkey and Russia as airlines avoid the Ukrainian, the number of flights has not reached a saturation point and there remains room for more planes, Al Suwaidi said. The authority also has a ban on flying over Syrian airspace, he said.
"The obsession of every airline around the world is security and safety," de Juniac of Air France-KLM said. "There is no economic compromise."
--With assistance from Andrea Rothman in Toulouse and Caroline Connan in London.
To contact the reporters on this story: Richard Weiss in Frankfurt at rweiss5bloomberg.net; Deena Kamel Yousef in Dubai at dhussein1bloomberg.net To contact the editors responsible for this story: Benedikt Kammel at bkammelbloomberg.net Tom Lavell