The ban on flying over Russian airspace as a result of Moscow's military offensive in Ukraine will hit routes from Europe to Asia the hardest, disrupting air cargo and stifling supply chains, Moody's Investors Service said.
Finnair in Helsinki is the European airline most affected by the airspace ban, flying around 40 per cent of capacity to the Asia-Pacific region, while the exposure for other long-haul airlines is about 10 per cent to 20 per cent, the credit rating agency said in a report.
For airports, exposure to Asia-Pacific routes varies with London Heathrow having the biggest exposure to the Asian market, which is expected to be affected by the closure of airspace, although current passenger volumes remain low, Moody's said.
"Logistical challenges in rerouting will add costs, causing temporary cancellations and ongoing disruption," it said. "Air cargo, which is a small component of traffic for most rated European airlines and airports, will also be disrupted, affecting supply chains for products including medical equipment, consumer electrical goods and textiles."
The global aviation industry is exposed to the conflict-related sanctions on Russia given the size and integration of the country into the sector. Plane manufacturers, lessors, aircraft maintenance companies and insurers serving Russian airlines such as Aeroflot are among those directly hit by the sanctions.
International airlines, meanwhile, are suffering from sharply rising oil prices and the additional cost of rerouting flights to avoid Russian airspace, which is expected to drive up ticket prices and air cargo rates.
"Ripple effect from the Russia-Ukraine war may trim air travel demand and pressure fare," George Ferguson, senior aerospace analyst at Bloomberg Intelligence, said of intra-Europe travel in the second quarter of 2022.
The conflict has resulted in a steep increase in crude oil prices, so airlines' fuel costs will increase although most European carriers are about 50 per cent hedged for 2022, Moody's said. Hedged airlines could typically see a 20 per cent to 25 per cent increase in fuel costs compared to expectations at the start of 2022, if current jet fuel prices are sustained.
Pressures will rise if jet fuel prices remain high through the rest of the year and into 2023, when the fuel hedging cover reduces.
Hungary-based Wizz Air has more limited hedging and is more immediately exposed, while Ryanair is the most hedged and at a competitive advantage, the report said.
"With fuel costs representing around 22 per cent of revenue for the industry globally in 2019, the increased costs would need to be passed through to ticket prices to preserve profitability," Moody's said.
"This would imply ticket price increases for hedged airlines of around 5 per cent to maintain margins, although the effect will vary significantly depending on the effective fuel costs incurred by each airline and demand elasticity for different routes."
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A Ukrainian serviceman walks past the vertical tail fin of a Russian Su-34 bomber lying in a damaged building in Kharkiv, Ukraine. AP Photo -
An apartment building damaged after shelling in Kharkiv, Ukraine. AP Photo -
A woman puts her head in her hands as she sits on a cot in a shelter, set up for displaced persons fleeing Ukraine, inside a school gymnasium in Przemysl, Poland. AP Photo -
Belarussian and suspected Russian helicopters on the flight line at Machulishchy Air Base outside Minsk, Belarus. AP Photo -
Children look on as people fleeing Russia's invasion of Ukraine shelter in a school, in Drohobych, Ukraine. Reuters -
Families eat in the shelter. Reuters -
A woman looks out from a building damaged by Russian shelling in Mykolaiv, 100 kilometres away from Odesa, western Ukraine. AFP -
A wounded Ukrainian man waits in the corridor of the central hospital of Mykolaiv. AFP -
An elderly woman is carried in a shopping cart after being rescued from Irpin, on the outskirts of Kyiv, Ukraine. AP -
A woman reacts as a train carrying children from Kyiv's Central Children's Hospital leaves the Ukrainian capital on its way to Lviv. Reuters -
A girl sits in an improvised bomb shelter in Mariupol, Ukraine. AP -
An elderly woman is coated in snow as she sits in a wheelchair after being rescued from Irpin. AP -
Belarusian volunteers take part in military exercises at the Belarusian Company base in Kyiv. AP -
Lessa, left, director of a nursery school turned into a refugee shelter, cries as she hugs Olega, who arrived from Kyiv with her baby, near Lviv. EPA -
Ukrainians pass a damaged bridge as they flee from Irpin. AP -
A man carries an elderly woman as people continue to leave Irpin. AP -
A soldier stands on a barricade made of sandbags in central Odesa, Ukraine. Reuters -
A charred Russian tank and captured tanks in the Sumy region. Reuters -
People rest at a temporary shelter for Ukrainian refugees in Przemysl, Poland. AFP -
Ukraine's ambassador to the Netherlands, Maksym Kononenko, third right, and his wife Tetiana Doroshenko, fourth left, attend a meeting of members of the Ukrainian community with Dutch King Willem-Alexander, third left, and Queen Maxima, second left, to discuss the situation in Ukraine, in The Hague. EPA -
A Ukrainian soldier looks at the destruction after shelling in Ukraine's second-largest city of Kharkiv. AFP -
A refugee holds her dog as they wait for trains to Poland in Lviv, Ukraine. Reuters -
A woman ties ribbons in Ukrainian national flag colours in a girl's hair as people wait at a refugee assistance centre in Prague, Czech Republic. EPA -
A Ukrainian soldier carries an elderly woman crossing the Irpin river on the outskirts of Kyiv. AP -
Lena, who had never left Ukraine before fleeing into Moldova, feeds Dasha, 3, soon after crossing the border. Erin Clare Brown for The National -
Refugees without immediate plans to move further inland can stay the night in tents set up on Moldova's side of the border. Erin Clare Brown for The National -
Tatiana and her son wait for a van that will carry them from the Moldovan border to Chisinau. Erin Clare Brown for The National -
Each night, the Palanca refugee camp in Moldova feeds up to 300 people who arrive with no onward plans. Erin Clare Brown for The National -
People pass a damaged bridge while fleeing the town of Irpin, close to the Ukrainian capital of Kyiv. AP -
A Ukrainian soldier stands guard next to a church in Irpin. EPA -
A firefighter holds the baby of a Ukrainian refugee at the border in Romania. AP -
Ukrainian President Volodymyr Zelenskyy speaks in Kyiv. Reuters -
A Ukrainian soldier at a checkpoint in Kyiv. AP -
Ukrainian activist Ihor Mazur, left, a veteran of the war in the country's east, looks at a night-vision device in Kyiv. AP -
Ambassadors attend a UN Security Council meeting on threats to international security after Russia's invasion of Ukraine, in New York. Reuters -
Ukraine's UN ambassador Sergey Kyslytsya holds a paper with an image of Russia's Foreign Minister Sergey Lavrov as he addresses the Security Council in New York. Reuters -
A road sign put up in support of Mr Zelenskyy outside Russia's embassy in Washington. AFP -
Ukrainian refugees at the train station in Lviv, western Ukraine. EPA -
Lethal and non-lethal Ukrainian aid is loaded on to a plane bound for Poland by Canadian soldiers in Trenton, Ontario. Reuters -
Volunteers carry medical aid and necessities at a train station in Lviv. EPA -
Everton players wear T-shirts in support of Ukraine as they warm up for an English Premier League football match against Tottenham Hotspur. AP -
A residential building damaged by Russian shelling in Chernihiv, Ukraine. Reuters -
A man walks past a checkpoint in heavy snow in Lviv. Getty -
A man fleeing fighting in Irpin waits to cross a river after Russian forces entered the city. Getty -
Soldiers assist Irpin residents underneath a damaged bridge as they flee. Getty -
Ukrainian civilians who volunteered to join the Territorial Defence Forces take part in a training exercise in Odesa after Russia's invasion. Reuters -
Men carry a body to a lorry as people flee from the frontline town of Irpin. EPA -
A Ukrainian police officer runs with a child as the sound of shelling echoes nearby in Irpin. AP -
Parents and children struggle to board a train in Lviv. AP
However, European airlines in general have "very low exposures" to routes between Europe and Russia or Ukraine as a proportion of their total traffic, the report said.
Wizz Air is the most affected, with these routes representing about 9 per cent of summer 2022 schedules by available seat capacity. Turkish Airlines flies about 2.5 per cent of its capacity to Russia, while for the larger airlines exposure is less than 2 per cent, Moody's said.
The exposure of the Moody's-rated European airports to routes into Russia and Ukraine is also limited, mostly at less than 1 per cent of total annual passenger traffic. Prague airport has the biggest exposure at more than 5 per cent. Moscow Domodedovo is the only Moody's-rated Russian airport and is by far the most exposed, the agency said.
Looking ahead, demand for popular leisure routes in the summer could remain robust but is uncertain amid risks of military conflict escalation, Moody's said.
"Airlines are still recovering from the pandemic and from a low base at the start of 2021, and benefiting from loosening travel restrictions across Europe and transatlantic routes. Their high growth forecasts for summer 2022 may now need to be tempered," the report said.
Pent-up demand still has the potential to drive a continued recovery in passenger volumes in summer, especially for traditional leisure destinations in southern Europe, as well as routes west towards central and North America and the Caribbean, it said.
Inbound tourist travel into Europe is more likely to suffer, as well as routes into Eastern Europe.
"An escalation of the military conflict may dampen demand, with a potential knock-on effect on the ability of airlines to pass through higher fuel prices," Moody's said.
"The challenges airlines face in recovering pre-pandemic volumes and profitability through to 2023 have increased, with risks of higher fuel costs, higher inflation and lower disposable incomes dampening consumer demand."
