An increase in travel time may spike fuel costs. And a war-like risk will also increase insurance rates
With the US Federal Aviation Administration prohibiting American airlines from operating in Iraq, Iran, and over the Persian Gulf and Gulf of Oman, the aviation industry in India is bracing for a huge impact on travel time and costs.
While neither the Indian government and nor the Directorate General of Civil Aviation (DGCA) have commented on the same, the domestic industry fears a possible closure of airspace in the region.
The Federal Aviation Administration (FAA) issued advisory after Iran had launched missiles into Iraq targeting US bases in retaliation of an earlier American attack killing a top Iraqi commander.
Adding to the acute uncertainty is the crash of a Ukraine Airlines flight carrying about 180 passengers, shortly after take off from Tehran. The cause is yet to be ascertained.
"This is something that the aviation industry did not need at the moment. If this closure goes on, this will increase insurance costs for airlines. And with increase travel time, fuel costs will also shoot up," said Mark Martin, Founder and CEO of Martin Consulting LLC, an aviation advisory and consulting firm.
The immediate effect will be on travel time.
"While the full impact is still to be seen as of now, American and British carriers will be impacted," said Ajay Awtaney, the editor of Indian aviation website, http://livefromalounge.com.
The site pointed out that British Airways had already diverted two of its flights. And, others like Scoot and Kuwait Airways, which use the Iranian airspace, may also do the same.
"Typically, flights from Delhi come in via the Afghanistan/Pakistan corridor which is now open. Flights to Mumbai need to use the Iranian passage, and we need to see what routing will the US carriers take now as United and Delta have both dispatched their flights, but they are still about ten hours away from entering the region," added the website. Overall, travel time could increase by 30 to 60 minutes.
Awtaney noted that Air India was still operating flights in the region. PTI reported that the airline has decided to temporarily reroute flights. Its unit Air India Express has also done the same.
"This may lead to increase in flying time by approximately 20 minutes for flights from Delhi and 30 to 40 minutes for flights from Mumbai," the airline's spokesperson told PTI.
Other Indian airlines, such as IndiGo, SpiceJet and GoAir, which operated flights to the Middle East had not commented on the fast--evolving developments. Awtaney has noted that IndiGo does not use the Iranian airspace for its flights to Istanbul.
With the increasing risks, airlines may have to shell out more for insurance. "Insurance liabilities will increase because of the war-like situation. Depending on the aircraft size, airlines will have to pay anything from $18,000 to $40,000 per plane per month," said Martin.
It does not help that the violence in the region has had an impact on currencies and oil prices. Fuel cost is the biggest spend for airlines.The eventual impact may be on fares as airlines are likely to pass on the costs to consumers.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.