After a quarter of a century of relative calm, geopolitical tensions have increased in several regions around the world, with the crisis in Eastern Europe, a spate of coups d’état in West and Central Africa [1], and increasing tensions in the East China Sea[2] and the Taiwan Strait.[3]
Meanwhile, there has also been an increase in the number of natural catastrophes, known in the insurance industry as nat cats [4]. Wildfires, floods [5] and storms have all increased in frequency and ferocity, with many parts of the world impacted in ways that they had not been in the past.
It’s a combination that has created additional uncertainty and several challenges for aviation industry, and nowhere is this more apparent than in the airport sector, where ensuring resilience is high on the boardroom agenda.
Most airports operate in a competitive environment, which tends to keep margins tight. This means that an industry's business models are based on the assumption of business as usual. The challenge for airports over the last few years has been to maintain competitiveness while ensuring operational resilience in the event of a catastrophe, civil unrest or conflict.
Speaking at the WTW Airport Conference 2024 in Istanbul, Turkey, Volodymyr Kudak, Chief Executive Officer at Kyiv Sikorsky International Airport and Iryna Gyza, Deputy Head of Development Department at Kyiv Sikorsky International Airport discussed the competitive environment that the Ukrainian airport faced before the crisis with Russia, how the airport responded to the complete closure of the airspace around the crisis-zone, and the measures that the leadership team have put in place so that they could be ready for the recovery.
“The shortage of qualified personnel is an ongoing issue for the industry as a whole”
Iryna Gyza | Kyiv Sikorsky International Airport
Operated as a public/private partnership (PPP), the airport enjoyed a period of strong growth throughout the 2010s, attracting significant investment for the modernization of infrastructure and enhanced operational efficiency. Three new terminals were built, and the apron was enhanced to be able to accommodate 10 category C classified aircraft. Located relatively close to the centre of Kyiv, the airport’s growth was a significant boost to regional economic development and the local employment market.
Reacting to the crisis and the complete closure of Ukrainian airspace was complicated. “We needed to make sure that our teams were safe and reduce the number of employees from 900 to around 100 so that we could maintain the critical infrastructure,” says Gyza. “The shortage of qualified personnel is an ongoing issue for the industry as a whole, but we have focused on maintaining the skills of our staff we have in place with internationally accredited courses so that we can be ready to respond quickly when the airspace is reopened.”
According to Kudak, they will be in a position to resume civilian flights within one month of the airspace reopening, We estimate that around 75% of Ukrainians will come back after the war, which will create a high demand of air travel once the airspace reopens,” he observes. “We want to get back to being a gateway for people as quickly as possible, but there are seven million displaced people that will want to come back, which will take a lot of work. We estimate that it will take around two years to fully restore capacity and passenger throughput to pre-crisis levels. We played host to nearly 40 airlines before the crisis, and we maintain close contact with all of them so that they are ready to quickly, safely and competitively respond to any change in the geopolitical conditions.
“We estimate that around 75% of Ukrainians will come back after the war, which will create a high demand of air travel once the airspace reopens”
Volodymyr Kudak | Kyiv Sikorsky International Airport
The airport’s status as a PPP and the lack of operational funds complicates its ability to make recovery projections because it has to attract investment rather than rely on government funding, which is exceptionally challenging given the current uncertainty. In some ways though, the practical experience gained during the COVID-19 pandemic, as well as the relatively open nature of the aviation industry which habitually shares appropriate data, knowledge and experience through global, cross-industry groups, will help the aviation industry across Ukraine recover when the opportunity arises.
It is worth noting that the airspace restrictions have had ramifications that go beyond airports in the country and airlines flying into and out of Ukraine. The size and location of the countries involved have forced overflying airlines to take different routes which has had a knock-on effect on airports elsewhere in the region. It has also added to fuel costs, journey times, mileage and wear and tear on the aircraft themselves.
In the event of a natural catastrophe, civil unrest or conflict, hotspot flying becomes incredibly important, helping to evacuate people from or deliver humanitarian aid to an affected area. There are a range of risks involved and it is always closely scrutinized by the insurance sector, but what has happened in Ukraine is just one of several recent events that have reinforced the importance of contingency planning because it is significantly easier to get the support of insurance partners where there is a clear plan in place.
The challenges are different for each incident. A short-lived windstorm or flood can do massive damage to any infrastructure in its path but once it’s over, getting an airport operational can be a key part of moving humanitarian aid and expertise in and out of an afflicted region so clear-up operations need to commence quickly.
Civil unrest or a crisis like the one that has unfolded in Ukraine can continue for a protracted period and has the constant potential to flare up at short notice. In the case of geopolitical tension, insurers need to determine how to mitigate exposure for both the airport and any airlines flying to or over conflict zones.
Where both issues combine, as seen during the 2023 floods and subsequent dam collapses in Libya,[6] the challenges can be compounded.
Each event is unique, so responses at a governmental, risk management, and industry level need to be flexible. However, the insurance and risk management sector has a global perspective across industries and plays a key role in supporting the development of contingency plans that strengthen resilience. By collaborating whenever commercially feasible, stakeholders can reduce uncertainty and ensure that responses are rapid, efficient, and cost-effective.
Uncertainty changes existing risks and can create entirely unexpected new ones. It is vital that airlines work closely with their insurance partners to ensure that risk is defined, quantified and managed efficiently. Resilience is likely to be a key challenge for airports and the aviation sector as a whole over the next few years.
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada)
