Russia’s Prime Minister Dmitry Medvedev has suggested that if the EU escalates their sanctions against Russia to include its Energy sector, Russia will retaliate in kind with sanctions against the EU’s Airline Industry.   This coming from an interview that was conducted by Russia’s Vedomosti newspaper and published today.

As it stands now, European airlines enjoy the ability to transit Russian airspace on their routes to Asia, which typically saves 2-4 hours of flight time and thousands of dollars in fuel costs versus having to fly around Russian airspace.

Should these events come to pass, it will cost an airline like Lufthansa over $1 billion in additional fuel and maintenance expense EVERY 3 MONTHS should the ability to fly over Russia be taken away.  In fact, the Lufthansa Group operates 220 flights per week that transit Russian Airspace, so it’s quite easy to see how the additional expenses can add up quickly.

Of all the European Airlines, only KLM-Air France use Russian airspace more than Lufthansa; they transit Russian airspace 249 times per week (according to Bloomberg data).

As the war of words and sanctions continues to ratchet up, its unfortunate that no one in a position of influence clearly understands the concept of unintended consequences.   With most European airlines operating at losses, or at best a paper thin profit margin, we may see some of the smaller airlines fail as a result of this volley of sanctions between the EU and Russia.  At the same time Russia does not emerge as a winner in this situation either because they would lose millions in air traffic revenue generated by airlines transiting their airspace.

We’ll learn more in the coming days as the EU is set to meet today and announce their plans for increasing sanctions against Russia some time tomorrow.  Early rumors suggest that Russia’s oil companies may be restricted from raising long term capital from European markets.

 

 

BoardingArea