Record fuel prices as a result of the Russia-Ukraine conflict could undermine European airlines’ profitability despite the continued recovery in passenger demand, Fitch has warned. European carriers have tended to have higher fuel hedging positions than airlines in other regions, but Fitch believes the price of fuel could still be a drag on their performance. This is exacerbated by bans on flying in and over the countries involved in the conflict, which reduce traffic and lengthen long-haul routes. Fitch observes that hydrocarbon prices have been rising since the start of the war, fuelled by fears over future supply interruptions and self-restrictions on purchases of Russian oil imposed by commercial buyers, boosting demand for oil from other regions. Fuel is the largest expense item for airlines. It represented about 25% of all costs before the conflict, notes Fitch. Airlines’ hedging ratios are higher in Europe than in other regions, at generally about two-thirds of expected consumption for the next 12 months. However, European airlines’ approach to hedging has been diverging since the start of the pandemic. Air switched to a no-hedging policy from September 2020 but has returned to hedging following the recent price jump, locking in higher prices. Ryanair and British Airways kept their high hedging ratios, locking in fuel prices at much lower levels and hedged for longer periods. Wizz’s cost competitiveness is weakened and its profitability will come under pressure if the price stays high for longer than few months, Fitch believes. Most European countries have closed their airspace to Russian airlines in response to the country’s invasion in Ukraine, and the Russian government has reciprocated. Flights over Ukraine are suspended due to the war. Russian airlines are more affected by these measures, while flights to Russia and Ukraine constituted a small share of revenue for most European airlines. Russian airlines are also unable to purchase aircraft and parts from most global aerospace companies, and their leasing agreements with Western lessors must be terminated. Turkey is one of a small number of countries that allow Russian airlines in their airspace, and Fitch believes that carriers like Turkish Airlines, which has increased relevant capacity during the conflict, could benefit in the short term from the country’s position as the hub linking Russia with other destinations. In the absence of flying over Russia, carriers with more southerly routes to Asia, such as Turkish Airlines and Etihad Airways, could benefit in the short term, although general demand from Asia is yet to be “meaningful”, in Fitch’s view. Flightpaths over Russia and Ukraine were the shortest options for many long-haul flights by European airlines. Their lengthening increases costs. The only European airline that Fitch has downgraded as a result of the war is Russian flag carrier Aeroflot, to “CC”, due to sanctions on the provision of aircraft and spares that will severely disrupt its business due to its all-leased fleet of mostly Boeing and Airbus aircraft. Air traffic is still recovering from the pandemic, supported by the return of leisure travel. Fitch expects a full recovery to 2019 traffic levels by 2024. But the latest geopolitical developments, if their impact is lasting, are another setback that may slow the recovery, the US ratings agency warns.

The European Union Aviation Safety Agency has suspended all certificates it had issued for aircraft, equipment and organisations based in Russia, and placed responsibility for their regulatory oversight with local authorities. In a notice on EASA’s website detailing the restrictive aviation measures against Russia over the war in Ukraine, the EU regulator says the suspension includes approvals for flight simulation training devices and covers all certificate holders “located or residing in Russia, or otherwise subject to the [EU] sanctions”. Under the sanctions published in February, EASA type-certificate and design-approval holders are prohibited from providing any technical support – “directly or indirectly” – for the supply, manufacture, maintenance and operation of aviation and space technology “to any natural or legal person, entity or body in Russia or for use in Russia”, no matter whether or not the equipment or goods originated in the EU. “It is the responsibility of Russia as the state of registry or state of the operator, as the case may be, to decide on necessary actions to safeguard safety of the aircraft registered or operated in Russia,” EASA says. The EU regulator notes that its restrictions apply to the overhaul, repair, inspection, replacement, modification and defect rectification of aircraft and components, “with the exception of pre-flight inspection”. Russian flag carrier Aeroflot, MRO provider S7 Engineering and aircraft manufacturers Irkut and Tupolev feature on a list of entities that have had their EASA certificates suspended. Meanwhile, EU-based aircraft operators are prohibited from entering into wet-lease, dry-lease or codeshare agreements with Russian operators or in regard to Russian-registered aircraft. Lease approvals and codeshare agreements with Russian operators or aircraft registered there “should be revoked or terminated”, EASA adds. As part of the sanctions, the EU has banned Russian operators and aircraft – “regardless of their state of registry” – from flying through EU airspace. Exceptions exist for aircraft overflying or landing in EU territory in case of an emergency. Similarly, EASA says EU member states my grant approvals if “landing, take-off or overflight is required for humanitarian purposes or for any other purpose consistent with the objectives of this regulation [restrictions]”. Third-country operator authorisations previously issued by EASA for Russian-based airlines have been suspended too.

Ural Airlines has suspended services to Kazakhstan, citing “the current geopolitical situation”. Flights to the Central Asian country will remain suspended until 30 April, the Russian carrier adds. Affected passengers can rebook with a departure before 30 May or apply for a refund.