The freight subsidiary of the Lufthansa Group can currently take ten percent less freight on board because of the detours around Russia, as it has to refuel more fuel.
(Photo: © Bernd Hartung / Focus Agency)
Frankfurt Frankfurt Airport feels the consequences of the Ukraine war. The largest German hub currently has to do without around ten percent of the freight volume, said Fraport boss Stefan Schulte on Tuesday morning when presenting the balance sheet for 2021. It is about more than just the loss due to the sanctions against Russia. According to Schulte, this only leads to a drop in freight of around 4.5 percent. “It may also be that one or the other in the freight sector will shift to the Middle East,” says the Fraport CEO.
The Ukraine war could shift the balance in aviation. Because Germany has closed its airspace to aircraft from Russia, Russian airspace is closed to German airlines. Until now, they flew over Russia, more precisely over Siberia, to destinations in Asia. Now they have to give the country a wider berth.
According to the aviation industry association BDL, flight routes will be extended by up to 28 percent. Should the conflict escalate and the airspace over Kazakhstan be closed, the miles flown would increase by an additional 30 percent.
As a result, airports and airlines will find it harder to keep up with competitors from the Persian Gulf and Turkey. Since the government in Istanbul continues to allow Russian aircraft into the country, providers such as Turkish Airlines are allowed to fly to and over Russia. The hubs of Emirates, Etihad and Qatar Airways are geographically located in such a way that the airlines do not have to cross Russia at all in the direction of Asia.
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Air freight is currently particularly affected because only a few passengers travel to Asia due to the strict corona measures in China, for example. But the longer the war lasts, the longer Russia keeps its airspace closed, the more passenger traffic could suffer.
Detours worsen the competitive position of German providers
According to the BDL, German airlines accounted for 45 to 50 percent of traffic in the passenger market from Germany to China, Japan and Korea in normal times. It is quite possible that this share will shrink in favor of foreign airlines if there is a longer conflict in Ukraine.
The example of air freight shows why: In order to reach the core markets of China, Korea and Japan, Lufthansa Cargo’s freighters have to remain in the air by up to two and a half hours longer, with operating costs increasing at the same time.
In addition, the aircraft have to be refueled with more fuel, which reduces the cargo capacity by around ten percent, calculated Dorothea von Boxberg, head of Lufthansa Cargo, recently. The competition in the Persian Gulf, on the other hand, can fly indefinitely. “The sanctions, which we fully support, are of course a certain competitive disadvantage,” said von Boxberg.
In addition, fuel prices are rising sharply. However, the Cargo boss does not want to raise an extra surcharge because of all these consequences. “For us it’s not a question of extra charges, it’s basically a question of price,” she said. The extent to which customers would bear the additional costs naturally depends on supply and demand.
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But that could prove to be a problem. Air freight from Germany is not only becoming more expensive, Lufthansa Cargo flights, for example, are also losing their time advantage over transport via airports such as Dubai or Istanbul due to the detours. For freight forwarders, but also freight brokers, the competition from the Persian Gulf, for example, is becoming a real alternative.
“Competitive disadvantages are to be expected for the German air freight location, and there is a risk of freight flows being shifted,” warns the industry association BDL. The Gulf carriers would benefit indirectly from the Russian overflight ban for German and European carriers and gain market share.
The dependence on freight traffic in the direction of Asia is high, and not only in Frankfurt. At Leipzig/Halle Airport, the connections to Asia make up around a fifth of the total freight volume. The extent to which they can withstand the growing competition with offers from the Persian Gulf, for example, remains to be seen.
Foreign airlines are ramping up their connections to Russia
The example of passenger traffic with Russia shows how quickly competitors exploit the disadvantages of European airlines. The same applies here: airlines from the Persian Gulf and Turkey continue to fly their passenger planes to Russia. Some of these providers increased their offer shortly after the outbreak of the war – in some cases significantly. This is proven by data compiled by the Forward Keys data platform, which focuses on travel, for the specialist portal Aerotelegraph.
The experts looked at the flight schedules of several airlines for the week beginning March 7 and compared them with the offer for the week beginning February 21, the days immediately before the invasion of Ukraine. After that, Turkish Airlines increased the seat capacity on routes to Russia by 28 percent. Air Arabia is up 20 percent and Flydubai is up 8 percent. Etihad increased its offer by three percent, Emirates and Qatar Airways each increased theirs by one percent.
So far, Fraport boss Schulte has not feared any major market shifts: “Germany is a strong location.” He expects up to 46 million passengers for Frankfurt this year, after 24.8 million last year. Earnings before interest and taxes (EBIT) are expected to increase from around 314 to up to 440 million euros.
At the same time, however, he qualified: “At the moment we do not know how the attack on Ukraine will affect rising energy prices and possibly slipping into a recession.”
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