Hello, and welcome to Flight Global Focus, the essential
podcast for trusted aviation insight.
I'm Alfred Chua, the Asia Pacific Airlines Editor for
Flight Global. And this week we continue to
look at the fallout from the Middle East conflict on the
global airline sector. Now it's close to a month since
the conflict started and beyond the initial wave of flight
cancellations to and from the Middle East, we are now seeing a
more far reaching impact of the conflict.
At the centre of it all is the volatility of fuel prices, which
have hit new highs in recent days.
It continues to remain at elevated levels.
So the implications for the airline sector is clear.
Fuel costs make up a significant part of an airline's operating
expenses, and it is without a doubt the single largest
operating expense for airlines. So as we speak, you know, a
growing number of airlines have imposed or raised the fuel
surcharges, but the question remains, how much can they raise
before demand softens? And of course, meanwhile, others
are mulling network cuts to conserve fuel and to bring costs
down. Joining me to discuss this today
is Louis Harper, Flight Globals head of airlines.
Hi, Louis. Hi, Alfred.
Thanks for joining us today. Now it's clear that, you know,
we're looking at fuel prices going into quite uncharted
territory. Before we get into the specifics
of that, could you talk a little bit broadly about, you know,
where we are now in this crisis? Yeah, As you said, almost a
month in the last few days of March.
And I think, you know, it's fair to say the global airline sector
is adapting to a string of challenges that are likely to
resonate for some time, regardless of when this conflict
ends. Obviously for carriers in and
around the Middle East, there have been immediate concerns.
So there has been a limited resumption of flights, but that
continues to be disrupted by airspace issues and attacks from
Iran on on infrastructure in in their countries and kind of more
fundamental ones regarding their path out of the crisis.
And we'll we'll touch on on that in a bit, but also including, of
course what shape a recovery will take when it eventually
comes. We know that passenger demand
has recovered strongly from previous crises around the
world, but I don't think anyone is taking anything for granted
at this point. But as you say, for many
carriers soaring oil prices mean that guidance they issued for
2026 as recently as mid to late February is is now obsolete in
some cases. Obviously, heavily hedged
airlines are more relaxed about the short term, so probably for
most of 2026. But we also know that even for
them, higher oil prices will cause negative ripples beyond
jet fuel costs, notably including higher inflation,
which will have a cost impact on airlines themselves and on
consumer spending power. Most analysis suggests that even
in the best case scenario in terms of the war ending and it's
aftermath, it will take months for energy markets to normalise.
Everyone will hope that's not the case, but I think that is
the working assumption in in most cases.
And as you touched on, Alfred, we know that airlines can pass
on higher fuel prices through fares, but there is obviously a
ceiling where that starts to impact demand because, you know,
flying simply gets too expensive.
We've had a handful of international carriers that have
reported their earnings since the crisis began and they've
highlighted strong demand on services in some cases that
would otherwise have been operated by the big Golf
connectors. That's helping to offset higher
costs and shows that crises also bring opportunities alongside
the myriad challenges we're seeing at the moment.
But we've also, as we talked about in the last podcast, that
carriers serving markets between Europe and Asia Pacific and vice
versa, except those that can still overfly Russia, such as
the Chinese majors. The narrowing of the airspace
corridors is being watched nervously everywhere as the
conflict, you know, continues to bring the very real risk of some
destinations falling out of reach.
Carriers everywhere will also be looking for any worsening of the
supply chain challenges that have clouded the post COVID
period. And that could be because of
specific developments around logistics difficulties or more
broadly, you know, a worsening global economic outlook and
conditions in the global economy clearly will not help those
supply chain issues. So a lot lot to look out for.
And you know for the Middle Eastern carriers, as you
mentioned earlier, these kind of unknowns, they will be far
greater for them, right? Yes, I think it is the Gulf
carriers that are among those facing the most uncertainty.
I think most airlines around the world are at differing degrees,
but operating as they do in countries that have been
attacked by Iran in response to the US and Israeli strikes and
obviously, as we mentioned before, facing quite severe
restrictions on what they can do.
We talked in the last podcast that this came just as ambition
in the region was at a fresh high.
I think last year's busy Dubai Air show reflected a commercial
aviation sector in the region that was awash with confidence
and growth plans. I think when you talk about
reassurance for those carriers that things might go back to how
they were, they can look back to the COVID-19 crisis.
So not that long ago, at the height of the pandemic, there
were plenty of predictions made about what would come once
travel restrictions ended. And amidst an avalanche of
forecasts, you know, some turned out to be correct, notably on
topics such as lower business travel demand.
That's been a theme continues to be to this day.
The crisis overall, which obviously at this point was
much, much bigger than what we're going through at the
moment with the Middle East. But there is a debate about
whether the industry was fundamentally changed by it.
I think it's fair to say there were certainly differences
coming out of the crisis. And one that stands out when
we're we're talking about what's going on today was a prediction
that people would not be so willing to fly through the big
hub airports coming out of COVID.
I think the thinking was that passengers would prioritise
direct flights to minimise their time in the air and in crowded
airports. I mean, Emirates gave short
shrift to those suggestions at the time.
I mean, President Tim Clark regularly argued that when
flying, return demand would be stronger than many people were
expecting and it would come back more strongly.
And he was, you know, largely correct as shown by Emirates
topping the global ranking for airline profitability for the
last full year. At the same time, Qatar Airways
has recorded impressive results in the post COVID period.
Etihad has returned to growth and we all know that Saudi
Arabia is plotting a new regional powerhouse with the
founding of Riyadh Air among other steps.
And also in the low cost sphere, carriers like Air Arabia Flyer
deal Fly Dubai, etcetera. They've become really important
and growing players in in regional connectivity and Qatar
Airways can also point to it's own pre COVID recovery from
severe airspace restrictions being imposed on it's flying
back in 2017. But the question is, you know,
are there lessons from that? Will it play out the same this
time for the Middle East carriers?
I think one thing that seems inevitable at this point is that
it will take some time for consumer confidence to return
when it comes to the Golf hubs as final destinations for
travellers. And that will be a significant
loss of revenue for some operators.
The time scale on that, as I say, is unclear.
But I think when it comes to the Gulf carrier's roles as global
connectors and as onward connectors within the Middle
East, there will be some cautious optimism still, even
though there are clearly huge challenges ahead.
I mean, that's partly because the COVID-19 crisis provided
some clear lessons for airline leaderships regarding who
emerged from the period on the front foot.
And I think here, one of the key learnings is to always be ready
to restart and or ramp up operations at a moment's notice.
And I think what we've seen in this crisis so far is carriers,
including Emirates have already demonstrated their abilities to
do that. And that that's encouraging for
when hopefully things things calm down more fundamentally.
At the same time, the Gulf carriers are some of the world's
most financially successful and enthusiastically backed in terms
of investors and government support.
And that means they're well placed to stimulate demand
through attractive fares when it becomes possible for them to
operate as they did before, before the conflict.
Again, I think the COVID-19 crisis showed that consumers
also can have quite short memories, I think when the the
price is right. So that could be on the side of
of the Middle East connectors at least making a a pretty strong
comeback when they're allowed to.
So when we look at, as I've touched on other carriers in the
region that are at the moment, you know, serving passengers who
would otherwise have flown with the Middle Eastern carriers, I
think few will be betting on a fundamental shift in consumer
behaviour as a result of this crisis.
But as with all of these things, the lack of clarity over the
severity and longevity of the conflict as of late March, it
does mean a range of potential outcomes remain in play at this
moment. Right, right.
And, you know, Lewis, you made a good point earlier about
emerging from a crisis on the front foot.
And, you know, Speaking of which, you know, we're going to
move beyond the Middle East region.
We're going to look at what some of the other airlines around the
world are doing to address this challenge.
And one such challenge is United Airlines, which, you know,
perhaps we can argue has emerged from the COVID crisis on the
front foot. Now, United Airlines has been
one of the first to kind of give some of specifics as to what
they're doing in response to both the war and its impact,
right? Yeah.
So I think the headline there is United is trimming it's near
term capacity by as much as five percentage points.
So a lot of flying because it is anticipating A prolonged period
of elevated fuel prices brought about by the conflict.
So Scott Kirby, the the CEO put out a note to employees and
they're working on the assumption that fuel prices will
remain elevated at around $175 a barrel for the rest of this year
and through 2027. Obviously predicting energy
markets is difficult at the best of times, but that's their
working assumption. I think we've touched on in our
reporting on this and, and in the last podcast that the the
crack spread. So the difference in price
between jet fuel and and oil has widened at the same time as oil
prices going up. So there's kind of been an
outside outsized impact on jet fuel prices even beyond the
changes we've seen with oil. And he gives a bit more context
regarding that level of fuel price.
He says that would mean an extra $11 billion in annual fuel
expenses for United. And an important context there
is that United's best ever annual net profit was $5
billion. So you can see the problem that
airlines are facing, and United is a pretty successful airline,
so this is going to be more significant for others.
That much is very much true. In United's case, he says the
airline is tactically pruning flying and that is focused on
temporarily unprofitable routes because of the higher fuel cost.
It's focusing that pruning on off peak operations where it
can, such as red eye flights. And that kind of changes
covering the second and third quarter of the year.
Again, reflecting the fact that I think most working assumptions
is the impacts of this conflict will resonate for some time,
even if the war were to come to an end.
It will also cut its operating capacity at Chicago and the
suspended flights to Tel Aviv and Dubai, obviously, as many
carriers have. Kirby's view is there's no point
in burning cash in the near term on flying that just can't absorb
these fuel costs. And that's someone, you know,
running an airline that that makes a decent amount of money,
which is the exception rather than the rule, I think in in the
industry. Capacity plans for beyond 2027
are still intact. You know, Kirby is clear on that
as well as fleet plans. They remain unchanged.
And, you know, he stresses the airline will not be cost cutting
or deferring investments in the future.
Yeah, he's confident in United's position.
But these these are all about adjustments being made for for
the coming periods. I think the key thing for US
carriers, and he's not alone in having pointed this out among
the CE OS of of those US operators, demand is really
strong in the US. In fact, Kirby says it's the
strongest we've ever seen in the near term for US carriers at
least, the higher costs are being offset to an extent by
this strong demand environment, and that's presumably being
helped by some of the capacity moderation we've seen among low
cost carriers in recent periods. So yeah, as you said, yeah,
United is the first major US carrier to really be specific
about what it's doing in response to to the conflict.
But Alfred, we're also seeing airlines in your region begin to
craft their responses, too. Yeah, that's right, Lewis.
So you know, we're beginning to see a growing number of airlines
in this region. They're cutting back on their
operations. And at the moment now and sort
of speaking to you in late March, you know, these are
small, but it's a significant shift, especially given how just
a few months ago actually many operators were optimistic about
growth prospects. We'll take a look at the
Philippines first. Now, this is quite crucial
because the Philippines on 25th March declared a national energy
emergency and that was a day after Philippines President Bon
Bon Marco said in an interview with Bloomberg that it is a
quote, distinct possibility that the country could ground some
planes in order to save fuel. Now since then, you know, the
Filipino carriers have come out. In response to this, Philippine
Airlines said that it has secured sufficient jet fuel
supply to support its scheduled operations and that includes
long haul flights for what it has called the foreseeable
future. And like United Airlines, like
we spoke about earlier, the Philippines low cost carrier
Cebu Pacific, they've really implemented flight cuts through
the northern summer period. So that's kind of all the way to
the end of October. And these are primarily on a
small number of routes from secondary cities in the
Philippines. So they're sort of their main
domestic trunk and all that. It's unaffected.
And you know, the airline has said that the increase in fuel
costs will likely double it's fuel expenditure and you know,
have a quite a big impact on its operating costs.
And of course, I'm speaking to you as we're recording this on
the 26th of March. And just a few minutes, in fact,
just a few minutes before we recorded this podcast, Hong
Kong's Cathay Pacific announced that they would be increasing
their fuel surcharge across its network, both short, medium and
long haul from April. And it's a sort of a blanket
increase of about 34% in fuel surcharge.
Now, like some of the other airlines in the region, Cathay
has said that fuel accounts for quite a significant portion of
its operating expenses. In 2025, fuel cost itself was
about 30%. And Cathay notes that fuel is,
quote, critical to our operations.
And, you know, well, Cathay says that it has fuel hedging to
manage this volatility. Hedging itself does not
sufficiently cover against the scale of the recent surge in
fuel prices. If we're looking elsewhere in
the region, there are reports emerging that Vietnam Airlines
is cutting back on domestic flying due to limited jet fuel
supplies. In South Korea, local news
reports suggest that the country's low cost carriers are
looking to cut back on short and long haul flying to save on fuel
costs. And Speaking of low cost
carriers, if we move down South to Australia, Jet * you know,
they cited rising fuel costs among the reasons that it's
cutting back on trans testament flights and domestic flights in
New Zealand. So I think it's quite clear that
we will see more of such network cuts, fuel surcharge increases,
fare increases and all that in the coming weeks or even days.
And that's even if, you know, let's say the war ends in a few
days, we'll still sort of see this lingering effect over the
next few weeks, months, days to come.
Louis, just going back to you again.
What do you think you know will come next beyond what we're
seeing now? Yeah, I think you as we've both
touched on, there are some unavoidable impacts that as we
say could resonate for months and beyond in the industry.
As I mentioned the Gulf country's status as it's
destinations for travellers. But you know, everywhere the
cost of fuel is, is such a huge thing for airlines as you say
that if that is elevated for an extended period, obviously
you're tearing up all industry profit expectations and
individual airline profit expectations for the year and
kind of starting the calculations again there.
So, so yeah, that that's really, really significant and it's all
about time scales and severity. But I think there's there's
going to be an impact for some time there.
Geopolitically, obviously there's a lot to play out
notably around the Gulf countries relationships with the
USA from a security standpoint. That's just one of many things
that that are likely to be affected by this conflict.
And again, the consequences of that is likely to emerge over
months and years and will inevitably impact the airline
industry one way or the other. Specifically, there's a lot to
learn about the future of the Strait of Hormuz, which is
central to a lot of the the energy challenges we're seeing.
And you know, who knows how that plays out, but clarity on that I
think will being sought by both sides, but remains a a huge
sticking point clearly. And I think as we've both
touched on, while it's not impossible that the war ends by
some definitions sooner rather than later, even the best case
outcomes are awash with uncertainty.
That's not a new thing for the airline industry, but it's not
ideal either, particularly when I think it's fair to say the
earnings calls recovered pre 28th of February.
There were pretty high spirits about what was ahead in 2026.
And I keep hearing a lot of executives saying, you know, as
long as geopolitical developments and fuel prices
trend as we expect and unfortunately that clearly
hasn't happened. So yeah, a year of uncertainty,
I think even under under the best case outcomes regarding the
war. Yep.
And you know, like they say, we can.
Perhaps we can hope for the best.
Thank you so much for your insight, Lewis.
Thanks, Alfred, Good to talk. You've been listening to Flight
Global Focus, which is a production of Flight Global with
audio editing by Lucy Johnson. If you want to get in touch with
us or for commercial opportunities related to this
podcast, please e-mail us at podcast@flightglobal.com.
Listen, reach, review and subscribe wherever you get your
podcast. Join us again next week for more
in depth analysis covering the latest developments in airlines,
defence and aerospace. I'm Alfred TRA, and we'll see
you next time for Flight Global Focus.