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EU airline shares drop on Russian airspace report

Tuesday - 8/5/2014, 3:20pm  ET

MOSCOW (AP) -- Shares in European airlines fell Tuesday on a report that Russia is considering cutting off the country's airspace for European flights to Asia, a move that would force long and costly detours.

A report published by the Russian business paper Vedomosti quotes anonymous Russian officials as saying this would be a response to the sanctions the EU imposed on Moscow. The officials say the idea of limiting or cutting off the airspace is being discussed but no formal decision has been made, according to the newspaper, a respected daily.

Shares in Finnair, which operates a lot of flights from Northern Europe to Asia, slumped 5.6 percent. Air France-KLM fell 3.8 percent while IAG, the owner of British Airways, saw a 2.9 percent drop.

"Carriers would experience longer flying times and higher expenses if forced to avoid transiting Russian airspace," said Robert Mann, an independent analyst. "Trips to destinations within Russian airspace would be canceled. Some rerouted trips might require technical stops for fuel. It would be a significant inconvenience to customers and have significant self-imposed costs to the Russian economy."

Russia's state-controlled carrier, Aeroflot, could lose out on some 300 million euros it charges European airlines annually for the right to use Russian airspace. Its shares tumbled almost 6 percent.

The Russian Transport Ministry could not immediately be reached for comment. Prime Minister Dmitry Medvedev met Transport Minister Maksim Sokolov on Tuesday and said they would discuss recent sanctions against Russia. "We need to discuss possible measures in response," he was quoted as saying by Russian news agencies.

Helen Kearns, the spokeswoman for the European Commission, the EU's executive arm, said there had been no official information on this from Russian authorities.

Russia could legally close its airspace if it wanted to, according to the EU Commission. Currently, each EU country has a bilateral deal with Moscow on whether its airlines can fly over Russia.


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