Airlines across Asia are increasing ticket prices and preparing contingency plans, including the possibility of grounding aircraft, as the escalating Middle East conflict threatens to trigger the biggest oil shock since the 1970s.Indian carriers have already raised fares on long-haul routes by about 15 per cent and are considering further hikes as jet fuel prices surge, people familiar with the matter said, as quoted by Bloomberg. In Vietnam, state media has warned that airfares could climb by as much as 70 per cent because of the country’s heavy reliance on imported jet fuel.
Industry analysts say airlines in Asia are particularly vulnerable because many carriers have weaker fuel hedging programmes than their counterparts in Europe or the United States.“Panic buttons have been set off everywhere,” June Goh, senior oil market analyst at Sparta Commodities SA, told Bloomberg. “Airlines in Asia who have a weak hedging program are very vulnerable with the current jet-fuel pricing if they sold tickets at earlier price points than where we are now.”Some low-cost airlines in Southeast Asia are now preparing for scenarios in which planes may need to be grounded if jet fuel becomes too expensive or difficult to access, according to people familiar with the discussions.
Rising fuel prices threaten airline operations
The mounting pressure highlights the widening impact of the conflict, which erupted more than a week ago after joint US-Israeli strikes on Iran and has since disrupted air travel and fuel supplies globally.Oil prices have surged sharply amid fears of prolonged disruptions to shipping routes and energy supplies. According to Reuters, crude prices jumped 15 per cent to more than $105 a barrel, levels last seen in 2022, with Brent crude at one point rising as much as 29 per cent.Jet fuel prices have risen even faster in some markets, in some cases doubling since the start of the conflict.“Absent near-term relief, airlines around the world could be forced to ground thousands of aircraft while some of the industry’s financially weakest carriers could halt operations,” analysts at Deutsche Bank said in a note cited by Reuters.Fuel is the second-largest expense for airlines after labour and typically accounts for between one-fifth and one-quarter of operating costs.
Travel demand at risk as fares surge
The sharp rise in ticket prices is also raising concerns about declining travel demand, particularly for leisure passengers.Lorraine Tan, director of equity research for Asia at Morningstar, said higher fares could discourage travellers and lead companies to scale back business travel due to the uncertain outlook, reported Reuters.“The issue for the airlines now is that travel demand may be curtailed as costs become prohibitive for leisure travellers,” Tan said.Since the start of the conflict on February 28, more than 40,000 flights to and from the Middle East have been cancelled as airlines reroute planes to avoid the conflict zone, according to aviation data provider Cirium cited by Reuters.Airspace closures have forced airlines to carry additional fuel or make extra refuelling stops to avoid sudden diversions.
Airline stocks fall amid uncertainty
Airline stocks have also come under pressure as investors assess the potential impact of higher fuel costs and weaker travel demand.In Asia, shares of several major carriers have fallen sharply. Asiana Airlines dropped to its lowest level in more than 21 years, while the BI Asia Pacific Airlines index slipped to its lowest point in over five years as oil prices climbed above $100 per barrel, reported Bloomberg.Other global carriers have also seen declines. Korean Air shares fell 8.6 per cent, Air New Zealand dropped 7.8 per cent and Hong Kong’s Cathay Pacific declined about 5 per cent, according to Reuters.European airline groups such as Air France-KLM and British Airways owner IAG also fell between 2.5 per cent and 6 per cent in early trading.
Some airlines see opportunity despite crisis
While many carriers face mounting challenges, some airlines with stronger fuel hedging programmes could benefit from the situation.Deutsche Lufthansa AG chief executive officer Carsten Spohr said the German airline group could gain a “relative advantage” if competitors are forced to raise ticket prices because Lufthansa is hedged against fuel price swings, reported Bloomberg.The airline is also planning to increase capacity on Asian and African routes as Middle Eastern carriers struggle to operate normally.Despite the turmoil, some industry executives remain cautiously optimistic that the conflict will be relatively short-lived.“My own personal view is this is shorter-lived,” said John Plueger, chief executive officer of Air Lease Corp. “The main point here is the world doesn’t stop. It may be put on hold,” he told Bloomberg.
Airlines begin raising fares worldwide
Several airlines have already started adjusting fares in response to the surge in fuel costs.Australia’s flag carrier Qantas Airways said it would raise ticket prices on international routes this week as jet fuel costs climb due to the conflict, according to Reuters.The airline said flights to Europe remain more than 90 per cent full in March, significantly higher than typical levels for this time of year. It is also considering increasing capacity on existing routes to Europe in the coming months.Other carriers, including Air New Zealand, have also announced fare increases as airlines worldwide grapple with rising operating costs and uncertainty over fuel supplies.
