How Russia's invasion of Ukraine could hurt travel's recovery

(CNN) — This was supposed to be a year of recovery for a travel industry hit hard by the global coronavirus pandemic. But Russia’s invasion of Ukraine may have just changed that.

After two years of disrupted travel due to ever-changing Covid-19 restrictions, airlines and tour operators are once again bracing for closed skies, cancellations and a cloud of uncertainty over international travel.

More than 30 countries have so far closed their airspace to Russia, with Moscow reacting in kind. Russia’s Civil Aviation Authority announced it has closed off its airspace to the carriers of at least 37 countries as of Tuesday. The airspace over Ukraine, Moldova and parts of Belarus also remains closed.

In the short-term this means flight cancellations or a diversion of air routes. But the long-term consequences for the travel industry could be much more far reaching. Here’s why:

Rising fuel costs will hike travel prices

Global crude oil prices surged to more than $110 per barrel on Wednesday as investors fear Russian energy exports will be limited or halted as a result of the conflict in Ukraine.

These price surges will make any type of travel more expensive. Coupled with potentially longer air routes that need more fuel as they circumvent closed Russian air space, the higher prices will eventually need to be passed on to the consumer.

Europe’s biggest airline Lufthansa said the Asia detours will cost a “single-digit-million-euro” amount per month. Addressing reporters during a company earnings update on Thursday, Lufthansa chief financial officer Remco Steenbergen said the carrier will need to hike ticket prices to offset the rise in fuel prices and other costs.

A spike in fares could lead to lower demand — and that spells bad news for an industry already struggling to make up for pandemic-related losses, not to mention inflation.

Safety fears could weaken demand

Rising fuel costs will inflate passenger tickets. As will a drop in demand caused by fears of conflict.

STEFANI REYNOLDS/AFP via Getty Images

The European Union Aviation Safety Agency, known as EASA, has warned of a “high risk” to civilian aircraft flying near the Ukrainian border. Airspace over Russia, Belarus, Poland, Slovakia, Hungary, Romania and Moldova is also on the risk list.

EASA doubled the size of the warning zone around Ukraine on Friday, fearing “mid-range missiles penetrating into controlled airspace.” The agency added, “in particular, there is a risk of both intentional targeting and misidentification of civil aircraft.”

EASA’s warning will not be taken lightly after Malaysia Airlines flight MH17 was shot down over eastern Ukraine in 2014, killing 298 people. Investigators said the missile that brought the plane down was fired from a launcher belonging to Russia’s 53rd anti-aircraft missile brigade.

For many travelers and crew already spooked by coronavirus concerns, the idea of flying anywhere near a conflict zone may be too much.

“It is likely that destinations close to Russia will suffer as consumers will fear the proximity of war, even if that is irrational, based on no declared threat from Russia,” Olivier Ponti, vice president of insights at travel analytics company ForwardKeys, told CNN.

“The US market is likely to be deterred significantly from visiting Eastern Europe and deterred, although not quite so much, from visiting western Europe,” he added.

Covid-19 still exists, and the refugee crisis could make it worse

We’re still living amid a global pandemic with country specific travel and quarantine restrictions. Travel bodies had been calling on governments to lift Covid-19 related travel restrictions as vaccinated societies hoped for some sort of return to “normal.” However, the World Health Organization warned conditions on the ground in Ukraine and the resulting refugee crisis will make it easier for coronavirus to spread.

“Anytime you disrupt society like this and put literally millions of people on the move, then infectious diseases will exploit that,” Dr. Mike Ryan, director of the World Health Organization’s Health Emergencies Program, said during a news briefing on Wednesday.

“People are packed together, they’re stressed, and they’re not eating, they’re not sleeping properly. They’re highly susceptible to the impacts, first of all being infected themselves. And it’s much more likely that disease will spread.”

The UNHCR says more than two million people have been forced to flee their homes and estimates “up to four million people could leave the country in the coming weeks if the conflict continues.” The effects of a potential spread of the virus in neighboring countries could make governments less likely to ease Covid-19 restrictions, which will keep the pressure on the travel industry.

Loss of Russian tourism dollars

Turkey is among destinations experiencing extensive cancellations from Russian travelers.

Chris McGrath/Getty Images

According to the Association of Tour Operators of Russia (ATOR), Russians made more than 10.1 million tourism-related trips abroad in 2021. ATOR told Russia’s state news agency that 46.5% of the total tourist flow to 32 open states was to Turkey, with Russian tourists making 4.7 million trips to the country last year.

And those tourism dollars looked set to flow well into 2022. The latest data from travel analytics company ForwardKeys showed Russian outbound flight bookings for March, April and May had recovered to 32% of pre-pandemic levels, prior to the invasion of Ukraine, with Turkey, the UAE, Maldives and Thailand making up the most booked destinations.

That all changed with Russia waging war on its neighbor. Destinations which suffered the highest immediate cancellation rates over the February 24-26 period were Cyprus (300%), Egypt (234%), Turkey (153%), the UK (153%), Armenia (200%) and the Maldives (165%), data from the company shows. The absence of those Russian tourists will deal a big blow to those heavily dependent tourism destinations.

It’s important to note that not all countries have severed ties with Russia. Flights from the country are still landing in places like Turkey, Thailand and Egypt for the moment but the economic outlook for Russia is what’s keeping tour operators in those countries up at night.

Crippling Western sanctions have caused the Russian ruble to plummet to new lows with ratings agencies Fitch and Moody’s downgrading Russia’s sovereign debt to “junk” status Thursday morning.

As Russians’ savings diminish in value, they’ll also find it harder to use globally recognized credit cards abroad when they do manage to travel. Companies like Visa and Mastercard said this week that they too are working to enforce sanctions against Russia.

And, in another potential blow to the country, the World Tourism Organization is holding an emergency executive council meeting next week to decide whether to suspend Russia’s membership and participation in the organization.

No one likes uncertainty

From investors to travelers, no one likes uncertainty. The war in Ukraine has increased uncertainty over whether port closures and shipping delays will limit deliveries of everything from wheat to crude to cooking oil.

Travel stocks are seeing their share prices tumble too. International Consolidated Airlines Group, the owner of British Airways, lost 5% in February. Shares of Lufthansa have fallen 14% since Russian forces entered Ukraine, with UK airline EasyJet painting a similar picture.

The uncertainty over what happens next in the conflict is also making people think twice about planned or existing travel plans.

“We have had customers phoning looking for reassurance that their trip will go ahead and checking our flexible booking policy,” Matt Berna, Intrepid Travel’s managing director for North America, told CNN.

“Intrepid Travel is not currently operating any tours that visit Ukraine or Russia, but in the short term, we do anticipate a softening of sales for travel in Europe,” he added.

Of course planned vacations are in no way comparable to the plight of the Ukrainian people and the immense humanitarian disaster unfolding along its borders right now, but the impact Russia’s invasion of Ukraine could have on an already fragile travel industry is one that could be felt far into the future.

Top image: The Aeroflot check-in counter at Los Angeles International Airport on March 02. Credit: Mario Tama/Getty Images