Airline shares battered as oil prices spike, Iran war intensifies

Since February 28, through March 8, more than 37,000 flights to and from the Middle East were cancelled

Surging oil prices and the escalating US-Israeli war with Iran hammered airline stocks in Asia on Monday, piling ​pressure on carriers already navigating tight airspace as travellers scramble to evade the Middle East conflict.

The war has driven up fuel prices, with oil jumping 20% ‌in early trading on Monday, hitting its highest since July 2022, amid fears of tighter supply and prolonged disruptions to shipments.

Stranded passengers have been paying huge sums of money to escape the Middle East, with last-minute dashes to the airport, overland trips to less impacted hubs and, at times, fighter jets escorting passenger planes out.

With most airspace in the region still closed over missile and drone concerns, some people have ​turned to private jets as charter flights and limited commercial services struggle to evacuate tens of thousands of travellers.

Since February 28, when the US-Israeli war with Iran started, ​through March 8, more than 37,000 flights to and from the Middle East were cancelled, according to data from Cirium.

Brendan Sobie, a ⁠Singapore-based independent aviation analyst, said the operating environment for airlines had been difficult even before the Middle Eastern crisis and the oil price spike due to political and economic uncertainty ​and spply chain issues.

“Now that already high level of uncertainty has increased even further,” he said.

Flights in the UAE PHOTO: REUTERS

Shares in Australia's Qantas Airways, Air New Zealand, Hong Kong's Cathay Pacific, Japan Airlines, Korean Air Lines ​and major Chinese airlines China Southern and China Eastern all fell between 4% and more than 10% on Monday.

Shares of Indian carriers IndiGo and SpiceJet dropped 7.5% and 5.6%, respectively.

Fuel is the second-largest expense for air carriers after labour, typically accounting for a fifth to a quarter of operating expenses. Some major Asian and European airlines have oil hedging in place, but US arilines largely stopped the practice over the last ​two decades.

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"If crude is rising 20%, jet fuel is rising several times more as it is even more scarce, adding significant cost to operations together with crew resources which are ​stretched due to longer flying times when airspace is closed," said Subhas Menon, head of the Association of Asia Pacific Airlines.

Hedging can protect airlines from spikes in fuel costs through the use of ‌derivative contracts. ⁠But it can also backfire when prices fall, exposing carriers to above-market rates in swaps - a certain type of hedge contract that has burned some carriers in the past.

A line chart of the price of oil since Trump's election. PHOTO: REUTERS

Travel disruptions persist as war escalates

With airspace severely constrained, airlines have been forced to reroute flights, carry extra fuel or make additional refuelling stops to guard against sudden diversions or longer flight paths through safer corridors.

Combined, Emirates, Qatar Airways and Etihad normally fly about one-third of passengers from Europe to Asia and more than half of all passengers from Europe to Australia, New Zealand and ​nearby Pacific Islands, according to Cirium data.

Australia has asked the family members and dependants ⁠of diplomatic officials in the United Arab Emirates to leave the country, following the escalation that saw several Gulf cities come under Iranian bombardment and led to a brief closure of Dubai International Airport on Saturday.

Oman's Muscat International Airport has asked private jet operators to ​avoid using the site for "additional flights," giving priority to government and commercial flights as fresh airspace closures hit the region’s attempts to ​increase travel, according to ⁠an email seen by Reuters.

Flights to Iraq, Syria, Lebanon and Jordan by Turkish Airlines, AJet, Pegasus and SunExpress have been cancelled until March 13, Turkish Transport Minister Abdulkadir Uraloglu said on Sunday.

The United States has completed over a dozen charter flights and evacuated thousands of Americans from the Middle East since last week, the US State Department said over the weekend.

Air India has added ⁠dozens of flights ​to destinations in Europe and North America through March 18 as the closure of Middle Eastern airspace lifts ​demand for non-stop services.

As the war escalates, pilots told Reuters that the accumulation of conflicts - from Ukraine to Afghanistan and Israel - has increased the strain on their mental health as they are forced to manage shrinking airspace and ​a barrage of military drones.