The global aviation industry is currently bracing for significant turbulence. 

A confluence of rising fuel prices and escalating insurance costs, profoundly exacerbated by the ongoing geopolitical tensions in the Middle East, casts a long and unsettling shadow over its hard-won recovery following the widespread disruptions of the pandemic. 

SriLankan Airlines Chairman Sarath Ganegoda offered a candid assessment of the challenging landscape ahead, stating: “The aviation industry in total will definitely experience a negative impact from rising fuel prices and insurance costs.”

Higher costs and passenger caution

The ripple effects of the Israel-Iran conflict are already being keenly felt across the globe, reaching as far as Sri Lanka. Ganegoda highlighted two immediate and pressing concerns for the airline industry: heightened passenger caution and an undeniable surge in operational expenses. 

He elaborated: “Passengers will definitely be more cautious in travel to begin with. The cost of travel – both fuel and insurance cost – is expected to rise.” 

This statement underscores the dual pressure points that airlines are now facing: a potential decrease in demand coupled with a significant increase in the fundamental costs of doing business.

This pressure is particularly acute for an industry that has historically operated on notoriously tight margins. Aviation fuel, a highly volatile commodity, frequently represents a substantial portion of an airline’s operating costs, often ranging from 30-40% according to figures from the International Air Transport Association (IATA). 

Ganegoda confirmed that global fuel prices had indeed seen a sharp and immediate increase in the wake of the recent escalations. “Since the clashes broke out between Israel and Iran, fuel prices have picked up by about 15%,” he said.

While some airlines, including SriLankan, have prudently leveraged forward-selling contracts for fuel to mitigate immediate price fluctuations and secure rates in advance, the broader trend unequivocally indicates an imminent shift in pricing for the majority of carriers. 

Ganegoda claimed that prices would rise soon, explaining that the complex nature of fuel price formulas indicated it may take a while for the prices of air tickets to be affected. This lag, however, does not diminish the inevitability of the increased costs being passed on eventually.

Impact on flight routes, airspace safety

Beyond direct cost implications, the heightened geopolitical tensions are also forcing significant and often costly adjustments to established global flight routes. European-bound flights, in particular, are now directly impacted due to the temporary or extended closure of certain airspaces, most notably Iranian airspace. 

Ganegoda detailed the operational consequence: “They will have to take a slightly longer route now because some airspaces are closed, and besides, it is a war-prone area. You never know when a missile will be fired in the direction of the flight, so they will have to make a slight detour, which means more fuel costs, greater travel time, and very often, more air spaces to occupy.” The necessity, he estimated, would lead to an increase of travel time by about 10%.

Civil Aviation Authority (CAA) Director General Air Vice Marshal (Retd) Sagara Kotakadeniya offered further insights into the intricate operational complexities of these route changes and the fundamental principles governing air traffic management. 

Detailing the sophisticated safety protocols in place, he said: “Within a specific air route, we designate various flight levels. For example, an outbound aircraft might fly at 31,000 feet, while an inbound one on the same route would be at 41,000 feet. This ensures a crucial 10,000-foot vertical separation, guaranteeing safe passage even when aircraft approach each other.”

However, geopolitical conflicts introduce significant challenges to these systems. Kotakadeniya explained the mandatory nature of airspace deviations: “When countries like Iran and Israel are in conflict, it’s vital to recognise their missiles can reach altitudes of around 40,000 feet or higher. Therefore, aircraft are mandated to deviate from such airspace, as missile launches are unpredictable.” 

These essential safety measures, while paramount for the well-being of passengers and crew, carry a financial burden. 

Fuel pricing and overflying costs

The CAA Director General also discussed fuel pricing and regional market dynamics. He noted: “Fuel prices are entirely dependent on the supplier to each country. If we were purchasing from Iran, any supply chain difficulties there would lead to higher transportation and associated costs.”

He also offered a unique perspective on Iran’s pricing strategy: “Iran, being a large country, might not want to appear affected by the conflict globally, so they might choose not to increase prices based on how the conflict has unfolded so far.” 

He noted that, to his understanding, there had not been a significant global fuel price surge directly linked to this specific conflict yet.

Regarding the financial implications of route changes, particularly overflying costs, Kotakadeniya clarified the general rule: “If you fly over a country’s airspace, you are required to pay a fee. If you are taking a longer route, which sometimes includes multiple countries, you definitely have to pay.”

Industry impact

However, the CAA Director General introduced a crucial caveat regarding how quickly airlines passed these costs to consumers. 

“Airlines typically do not increase prices unless a war is truly permanent. Modern conflicts, unlike in the past, are generally shorter due to economic systems. You might ask about Russia and Ukraine fighting for so long, but even they took breaks. Right now, we cannot definitively say ticket prices will rise. However, if this war persists for years, forcing longer routes, airlines will certainly re-evaluate their pricing.”

For SriLankan Airlines, these multifaceted challenges emerge at a critical juncture. The National Carrier, like others, is on a strenuous path to recovery after the pandemic and Sri Lanka’s economic downturn. 

While Ganegoda acknowledged the universal impact of rising costs and route changes, he conceded that SriLankan Airlines was particularly susceptible given its significant Middle Eastern and European routes. “It will affect everyone, not just SriLankan Airlines,” he stated.

Beyond the direct financial hit, the conflict adds significant uncertainty to the tourism sector, a vital pillar of Sri Lanka’s economy. The nation is actively working to revive tourism, crucial for foreign exchange and employment. 

“We anticipate a downturn in travel, particularly after the Air India crash which killed over 200 persons,” Ganegoda commented, attributing the downturn not only to the current conflict but also to other recent global events that have negatively impacted traveller confidence.

SriLankan Airlines’ strategy

Despite these formidable headwinds, SriLankan Airlines is resolutely focusing on controllable factors. Ganegoda reiterated the airline’s commitment to enhancing its core strengths. 

“Since we cannot compete on hardware, our service, hospitality, and food are where we can differentiate ourselves. The airline continuously innovates and improves those areas,” he said.

Recent fleet expansions, like the newly leased Airbus A330-200, exemplify the airline’s proactive strategy to boost capacity and access profitable routes. The Chairman confirmed the new aircraft was performing well, a positive sign amidst looming challenges.

The aviation industry, with its razor-thin margins and inherent sensitivity to global events, stands at a critical juncture. As Ganegoda’s candid assessment, supported by Kotakadeniya’s operational insights, reveals, the current geopolitical landscape poses a formidable obstacle. 

The direct correlation between regional conflicts, fluctuating fuel prices, increased operational complexities from rerouting, and shifting travel sentiment creates a profoundly challenging environment. 

For Sri Lankan Airlines and its global counterparts, navigating these turbulent skies will demand continued resilience, strategic adaptations, and a keen eye on evolving economic and political currents to ensure sustained recovery and future stability.