Hostilities in the Middle East are a reminder that the region is not just crucial to the global supply of oil and gas but a vital conduit for the world’s airline passengers. Over the past two decades the Gulf’s “super-connectors”—Emirates, Etihad and Qatar Airways—have helped long-haul flyers travel across the world. Amid the conflict, tens of thousands of those passengers have been stranded. Efforts to restart “limited” services have been halting. On March 16th Emirates was forced to cancel flights and reroute some planes mid-air after a drone attack on Dubai’s airport. The impact on the global airline business may persist well after the war ends.
The Middle East has come to play a central role in aviation. Before the conflict iata, a trade body, had forecast that the region would bring in 17% of the $41bn in net profits it expected for the global airline industry in 2026. Emirates is the world’s biggest international carrier, and the most profitable one, too. It and its short-haul partner, FlyDubai, placed large orders for planes at the Dubai airshow in November, as did Etihad, betting on further growth.
That now looks under threat. Dubai’s development as a tourist and business hotspot means that it has become the destination for around half of Emirates’ passengers. Connecting flyers, who only have to spend a few hours in Gulf airports, may come back once the war ends, lured perhaps by huge discounts. The tourist trade will be harder to recover.
The Gulf’s carriers are not the only ones affected by the conflict. Other airlines that fly over the area must switch routes. European carriers flying to Asia have had to avoid Russian airspace since the start of the war in Ukraine; transiting the Middle East became a popular alternative. Skirting another combat zone is adding more time and burning more fuel.
And that fuel is becoming dearer. The price of crude oil now hovers around $100 a barrel, compared with roughly $70 before the war. But the impact is even more severe for airlines. The price difference between jet fuel and crude, or the “crack spread”, has grown. That is in part because 20% of the world’s jet fuel passes through the Strait of Hormuz, notes James Noel-Beswick of Sparta Commodities, a data provider. Prices have more than doubled since the fighting started, to an average of around $190 a barrel.
The impact will be uneven. For low-cost carriers, fuel accounts for about a third of costs, compared with a fifth for legacy airlines. Carriers also vary in their level of protection. Some, such as Ryanair, IAG and Qantas, are well hedged against near-term price rises, softening the blow. America’s big carriers, however, are typically unprotected, having deemed hedging unnecessarily complicated and costly (though Delta Air Lines owns a refinery, which will help). If fuel prices remain high throughout the year, it could cost them tens of billions of dollars, according to Deutsche Bank. In response to soaring fuel costs, some airlines are starting to ground aircraft. Air New Zealand is axing around 1,100 flights between now and early May.
All this presents an opportunity for some carriers. With Gulf airlines out of action and others halting flights, fares have surged. British Airways, part of IAG, has already added extra flights to Singapore and Bangkok. Germany’s Lufthansa has reported a 60% jump in bookings for flights to Asia in March. Demand for air travel will suffer in the short-term, particularly if surging energy prices drag down economic growth. But in the past it has tended to bounce back swiftly after disruptions. In the meantime, the Gulf airlines’ rivals will relish the chance to win some of their customers back. ■
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