Insurers are moving to raise war risk premiums for airline fleets operating in West Asia, which could push up already high air fares as carriers are likely to pass on part of the additional cost to passengers, several aviation industry insiders told HT.
Insurers have begun approaching airlines flying to parts of West Asia, citing the high operational risks of “war zone” areas and seeking to review insurance premiums for planes flying on these routes, people familiar with the discussions said. Airlines have begun operating a limited number of flights to transport stranded passengers to and from Gulf airports in the wake of the escalating conflict between the United States, Israel and Iran.
Queries sent to Air India, IndiGo, Air India Express, SpiceJet and Akasa Air did not elicit a response.
“In such situations, the insurer has the right to issue a cancellation notice or apply additional war risk insurance premiums due to fear of war or expected increased risks. In the current situation, this is an actual conflict and airlines continue to operate, so insurance companies may increase war risk insurance premiums,” said Prabodh Thakur, an aviation insurance expert.
Industry estimates suggest the revised premiums could add more $30-40 lakh cost of operating a narrow body aircraft on and around West Asia routes $90 lakh for a wide-body aircraft per round trip (e.g. Abu Dhabi-Delhi-Abu Dhabi), according to people familiar with the development.
This can translate into almost no additional costs $20,000 per passenger on narrow-body flights and approx $30,000-35,000 on widebody services, based on typical passenger loads,” a person told HT.
Another industry source said: “There will be an impact on air ticket prices due to the premium review, but it is too early to assess how much the ticket prices will increase.”
The conflict also raised other operating costs. Industry officials said jet fuel prices have risen by about 30%, increasing pressure on airlines. It is certain that fuel constitutes about 40% of airline operating costs.
“The rise in fuel costs alone could cause ticket prices for passengers traveling to and from the Middle East to rise by another 10-12%,” people familiar with the matter said.
For example, a random scan of a budget airline’s Mumbai-Dubai flight operating on March 8 has a fare of $20,000 on Thursday. While, under normal circumstances, the fare in this sector usually fluctuates $12000
The evolving security situation has also disrupted airline schedules and aircraft use. According to industry officials, airspace restrictions, operational uncertainties and sudden route changes have affected about 20% of flights for every airline operating in the region.
Spaces at many airports in the region are currently allocated on a daily basis, resulting in frequent last-minute changes in flight operations.
Another person familiar with the matter said: “Airlines cannot sell seats on these flights in advance, especially on services departing from the Middle East. Planes often have to be filled at short notice, sometimes a few hours before departure, resulting in lower passenger numbers and higher operating costs.”
Industry officials said that despite the rising costs, airlines are expected to continue operating these routes due to strong demand and the importance of Gulf connectivity for Indian airlines.
Air India Express on Thursday operated flights from Fujairah, Ras Al Khaimah and Muscat, Dubai. SpiceJet also operated flights to Mumbai from Fujairah and Dubai.
In the other direction, IndiGo announced that it will operate route 6E 91 from Mumbai to Jeddah on Friday. Air India has announced additional special flights to Dubai, Muscat and Ras Al Khaimah.
According to industry insiders, outgoing flights are seeing lower loads than domestic flights. “While flights to India are almost full, domestic flights are seeing less than 20% load,” one of the people said.
