The affected area: how the war in Iran brought down air travel in the Middle East
The passenger airline industry has barely managed to recover from the pandemic and adapt to the closure of Russian skies in 2022, as it faces a new challenge. The outbreak of the American-Israeli-Iranian war has paralyzed the world's largest aviation hubs, now located in the Persian Gulf region. What the carriers who find themselves in a difficult situation will do, whether prices will start to rise and whether there will be a large—scale change of air routes - in the Izvestia article.
The bottleneck
IATA (International Air Transport Association) experts predicted a "record" status in 2026 with 5.2 billion passengers and trillion-dollar profits. Now the implementation of such forecasts is questionable. The closure of airspace over key regions of the Middle East, damage to infrastructure in Dubai and Cyprus, as well as the rapid rise in oil prices have created a crisis for airlines, which in its structural consequences may be comparable to a pandemic.
Aviation always operates on the principle of shortest paths. But this system began to collapse in 2022, when mutual sanctions closed the skies over Russia to Western and Japanese carriers, cutting off the most profitable cross-polar route from Europe to Asia. The Middle East remained the main, and often the only viable alternative. But after the attacks, the airspace of Iran, Iraq, Syria, Israel and other Persian Gulf countries risks becoming a continuous no-fly zone.
Pilots and controllers are forced to squeeze transcontinental traffic into narrow corridors. Planes are allowed either far to the south — through the Gulf of Suez, the central part of Saudi Arabia and Oman, or to the north — through a tiny corridor between Armenia and Azerbaijan. Changing the route adds hours of flight time, which means the consumption of extra tons of kerosene, engine wear, disruption of crew schedules and disruption of docking. As the French pilots' union SNPL explicitly admits, the current situation is worse than during the Cold War: back then the sky was divided in half, but it was possible to fly over free zones without the risk of getting a rocket into the fuselage.
Middle Eastern carriers such as Emirates, Qatar Airways, and Etihad became direct victims of the conflict. Their business model is entirely based on gathering passengers from all over the world at their mega hubs in Dubai, Doha and Abu Dhabi for subsequent transfer. These airlines accounted for almost 10% of global passenger traffic. Now this system has suffered heavy damage. Dubai International Airport, through which more than a thousand flights passed daily, is paralyzed. On one of the days of the crisis, Cirium recorded the cancellation of 2 thousand flights, which is 900 thousand lost seats per day.
Passengers (those who are not stuck at Gulf airports) vote with their wallets and change their preferences. There is a massive outflow of customers from Middle Eastern destinations to direct flights from European and Asian carriers, despite much higher prices.
The losses from the closure of Dubai are enormous, said the editor-in-chief of the aviation portal. Avia.ru Roman Gusarov.
— Experts now estimate the losses of the oil and gas sector from the blockade of the Strait of Hormuz at about $1.5 billion per day. The damage from the bombing, destroyed terminals and airport downtime has not even been taken into account yet. Dubai, Abu Dhabi and Doha have huge international flows. If the conflict drags on, the consequences will be enormous," the expert pointed out.
Olga Epifanova, a member of the State Duma working group and a former member of the Federation Council Committee on International Affairs, in turn, noted that disruptions in the work of these hubs lead to up to 20-30% of flights being canceled or diverted to bypass routes in a number of directions.
— For a large network airline, each massive day of disruptions means up to an additional $ 5-10 million in direct operational losses (refunds, passenger accommodation, unused fleet), and while maintaining the current risk configuration during the month, the cumulative damage to the global industry naturally approaches the range of several billion dollars, primarily due to an increase in the price of kerosene per 15-20% and an increase in the cost of insurance coverage," she explained.
Fuel shock
The re-routing coincided with the worst possible scenario in the commodity markets. Oil has gained about 30% in price since the beginning of the year. At the same time, jet fuel traditionally accounts for 25 to 35% of any airline's operating expenses. Here, the industry is sharply divided into those who have managed to "lay the straw" and those who will take the blow head-on. Companies like Australia's Qantas or Singapore Airlines have hedged up to 80% of their fuel needs for the current half-year. This will give them a few months of respite. Carriers with an aggressive business model that prefer to buy fuel at spot prices are already suffering huge losses.
The stock market reacted to the current situation: the shares of Korean Air, Japan Airlines, Cathay Pacific, European IAG (owner of British Airways) and Wizz Air lost from 3 to 10% of capitalization in a matter of days. JAL management is already openly preparing passengers for the introduction of fuel surcharges on international flights. The financial burden of the war will be shifted to the end user.
Insurance vacuum
The non-obvious problem lies in the insurance industry. Airlines insure their aircraft against military risks, which covers the physical loss of the aircraft or liability to third parties. However, insurers have the legal right to cancel these policies with a few days' notice if they consider the region to be a zone of active hostilities. If this happens, flights will stop completely: no leasing company will allow an uninsured Airbus or Boeing to be lifted into the air.
As for the loss of revenue due to closed airports and cancelled flights, the situation is even worse. Standard production interruption insurance policies contain strict clauses about force majeure and military action. Airlines will not receive any payments for empty seats and simple equipment in Dubai or Cyprus. The industry was left alone with multibillion-dollar cash gaps. The situation is similar in the freight segment: tariffs for maritime and aviation cargo insurance across the Persian Gulf have jumped fivefold, disrupting the logistics of global trade.
If the conflict drags on, the aviation industry may face a real "Darwinian selection". Carriers with deep pockets, a sound hedging strategy, and access to alternative corridors will survive. The era of cheap intercontinental flights may be a thing of the past.
"The pressure on weak players is increasing: regional low—cost carriers and niche carriers, living off high fleet turnover and minimal cash reserves, with such a level of volatility and resource appreciation, gain a strength horizon measured not in years, but in quarters," Olga Epifanova pointed out. — Whereas systemically important companies with government support and access to capital markets have the opportunity to strengthen their positions and accelerate market consolidation.
Effects for Russia
Russian airlines are not on the sidelines of what is happening, but in the current situation, their losses may be noticeably less than the global average. Roman Gusarov believes that it is extremely difficult to assess the damage now — it will be fortune-telling on coffee grounds.
— No one will undertake to name the numbers, it is still unclear when everything will end. If flights resume tomorrow, the damage will be minimal. In our industry, there are only seven airlines out of more than a hundred operating in this area. Of course, this is a very profitable and important route, but it is not dominant in their business. His temporary loss is a serious cost, but certainly not fatal: no one will go bankrupt because of it," the expert emphasized.
He added that losses will be painful if the situation drags on, because it is difficult to calculate the delayed effect. Apart from the current downtime, it is unclear what will happen to the market next. It is possible that many Russians who planned trips will change their minds about flying to the Middle East due to the risks.
The Russian passenger (if it's not about direct flights to Israel or the UAE, but about transit), according to Gusarov, refocuses on alternatives. They still exist today: first of all, they are Istanbul and Yerevan.
— As for the Asian destination, we have nowhere to fly to Europe anyway, and there are direct flights to Asia. If the airlines realize that this is going to take a long time, they will offer new connections. For example, Aeroflot has a hub in Krasnoyarsk, from where you can fly to Southeast Asia. You can use hubs in Kazakhstan or Uzbekistan. There would be a demand, and the carriers would satisfy it. It was just that it was objectively more convenient to fly through Dubai, as it had an excellent infrastructure and a wide route network. Without this opportunity, people will still fly, but through other nodes," concluded the Izvestia interlocutor.
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