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Airline stocks hit by oil price spike and intensifying Iran war

Oil prices are surging and the U.S.-Israeli conflict with Iran is intensifying. This has hammered the airline stocks in Asia, putting more pressure on airlines already operating within a tight airspace. Travellers scrambled to avoid the Middle East conflict.

Oil prices have risen by 20% on Monday morning, the highest level since July 2022. This is due to fears about a tightening supply and prolonged disruptions in shipments.

Stranded passengers are paying huge sums to get out of the Middle East. They have to make last-minute trips to the airport or travel overland to hubs that are less affected. Sometimes fighter jets accompany passenger planes.

Charter flights and limited commercial service are struggling to evacuate tens and thousands of travellers.

Cirium data shows that since February 28, when the U.S. and Israel war against Iran began, until March 8, more than 37,000 flights into and out of the Middle East have been cancelled.

Brendan Sobie is an independent aviation analyst based in Singapore. He said that the operating environment of airlines was difficult before the Middle East crisis and the spike in oil prices due to political, economic and supply chain problems.

He said, "The already high level has now increased even more."

On Monday, shares of Qantas Airways in Australia, Air New Zealand in New Zealand, Hong Kong Cathay Pacific, Japan Airlines and Korean Air Lines, as well as major Chinese carriers China Southern and China Eastern, all fell by 4% to more than 10%.

IndiGo shares and SpiceJet's dropped by 7.5% and 5.6% respectively.

Fuel is typically a fifth or a quarter of an airline's operating costs. Oil hedging is used by some major Asian and European carriers, but U.S. Airlines have largely stopped the practice in the past two decades.

Subhas Menon is the head of Association of Asia Pacific Airlines. He said that if crude oil increases by 20%, jet fuel will rise several times as it becomes even scarcer. This means that operations are costlier and crew resources are stretched because of longer flight times during airspace closures.

By using derivative contracts, airlines can be protected from fuel price spikes. It can backfire if prices drop, and expose carriers to higher than market rates for swaps. This type of hedge contract has caused some airlines to lose money in the past.

Travel disruptions persist as war escalates

Airspace is severely constrained. Airlines have to reroute their flights, carry more fuel, or make extra refuelling stop to avoid sudden divergence or longer flight paths along safer corridors.

Cirium data shows that Emirates, Qatar Airways, and Etihad together fly more than one-third (33%) of passengers from Europe into Asia, and over half (50%) of them from Europe towards Australia, New Zealand, and the nearby Pacific Islands.

Australia has asked family members and dependents of diplomatic officials in the United Arab Emirates to leave the country. This follows the escalation of the conflict that saw several Gulf Cities come under Iranian bombing and caused a short closure of Dubai International Airport.

According to an email seen by, Oman's Muscat Airport asked private jet operators not to use the airport for "additional" flights. Instead, they should give priority to commercial and government flights. This is because new airspace closures are hitting the region's efforts to increase travel.

Turkish Transport Minister Abdulkadir Uraloglu announced on Sunday that flights to Iraq, Syria Lebanon and Jordan will be cancelled by Turkish Airlines, AJet and SunExpress until March 13.

U.S. State Department announced at the weekend that the United States had completed more than a dozen charter flights and evacuated thousands Americans from the Middle East since last week.

Air India has added dozens of non-stop flights between Europe and North America until March 18, as demand for these services is increasing due to the closure of Middle Eastern Airspace.

Pilots have said that as the war intensifies, the accumulation of conflicts from Ukraine to Afghanistan to Israel has put more strain on their mental health. They are now forced to manage a shrinking airspace while also being bombarded by military drones.

(source: Reuters)