Airline Stocks Slide as Oil Spike Raises Fuel Cost Fears

Airline shares declined across global markets as oil prices surged above US$100 per barrel following the escalation of conflict involving Iran, the United States and Israel. The increase in energy prices is raising operating costs for airlines and intensifying concerns about travel demand and operational stability. Brent crude rose about 15% to more than US$105 per barrel and briefly climbed as much as 29%, reaching levels not seen since 2022.

The rise in fuel prices quickly affected airline stocks across Asia, Europe and the United States. At the same time, airfares increased on several long-haul routes as airlines began adjusting pricing to offset higher fuel expenses. Analysts say the combination of higher energy costs and restricted airspace could affect airline capacity planning and profitability if the situation continues.

Airline shares in Asia recorded the largest declines following the surge in oil prices. Korean Air fell 8.6%, Air New Zealand declined 7.8%, and Cathay Pacific dropped about 5% during trading sessions. In Europe, Air France-KLM, International Airlines Group, Wizz Air and Lufthansa declined between 2.5% and 6%. Major US airlines also lost about 4% in pre-market trading, reflecting investor concerns about fuel costs and operational disruption.

Fuel remains one of the largest cost components for airlines. After labor, fuel typically represents between 20% and 25% of airline operating expenses. The recent surge in crude oil prices has also pushed jet fuel prices higher, with some markets reporting that fuel costs have doubled since the conflict began. This increase has placed additional pressure on airlines already rerouting flights and adjusting schedules due to airspace closures.

Rising Fuel Costs and Market Reaction

According to analysts at Deutsche Bank, sustained increases in jet fuel prices could have significant consequences for airline operations. In a note to clients, analysts wrote that “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.” The warning reflects growing concern about the financial resilience of airlines facing rising fuel costs and reduced operational flexibility.

Higher operating costs are also affecting travelers. Airline ticket prices on certain international routes have increased sharply within a short period of time. Data from Google Flights showed that a direct flight from Seoul to London scheduled for March 11 with Korean Air rose to US$4,359 compared with US$564 one week earlier. Such increases illustrate the immediate effect of higher fuel costs on airline pricing strategies.

Market analysts say sustained price increases could reduce passenger demand, particularly among leisure travelers. Lorraine Tan, director of equity research for Asia, Morningstar, said rising costs could lead both travelers and corporations to reconsider flight bookings. “The issue for the airlines now is that travel demand may be curtailed as costs become prohibitive for leisure travellers and as some companies start to limit business travel due to the uncertain outlook,” Tan said.

Industry observers say the aviation sector is attempting to balance higher operating costs with the risk of reducing demand through excessive price increases. Henry Harteveldt, founder, Atmosphere Research Group, said airlines have already begun adjusting fares in response to rising fuel prices. “Airlines began increasing airfares this week as spot jet fuel prices started to spike,” Harteveldt said, noting that carriers are initially raising fares for premium seats in business- and first-class cabins.

According to Harteveldt, airlines are attempting to determine how much ticket prices can increase before demand declines. “They are trying to find a balance between how much they can increase fares to cover substantially higher fuel costs and how high is too high,” he said.  Airlines are expected to continue monitoring demand patterns while adjusting fares gradually in response to fuel market conditions.

Airspace Restrictions and Operational Impact

The conflict is also affecting airline operations through airspace closures and route adjustments across the Middle East. Airlines have been forced to avoid several major flight corridors, resulting in longer routes, higher fuel consumption and increased flight times. Pilots are carrying additional fuel or scheduling refueling stops to manage potential diversions or changes in flight paths.

Subhas Menon, director general, Association of Asia Pacific Airlines, said the effect of fuel price increases is amplified by operational challenges. “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,” Menon said.

The current disruption recalls earlier periods when fuel price spikes affected airline finances. Analysts have pointed to the sharp rise in jet fuel prices following Hurricane Katrina and Hurricane Rita in 2005, which contributed to financial distress across the airline sector. During that period, major US airlines including Delta Air Lines and Northwest Airlines filed for bankruptcy protection.

Flight cancellations across the Middle East have increased significantly since the conflict began. Data from aviation analytics firm Cirium shows that more than 37,000 flights to and from the region were canceled between Feb. 28 and March 8. Airlines have had to revise schedules and redirect aircraft while passengers seek alternative routes to reach destinations.

The Middle East remains a critical hub for long-haul international travel. Airlines such as Emirates, Qatar Airways and Etihad Airways normally transport about one-third of passengers traveling between Europe and Asia. They also carry more than half of all passengers flying between Europe and Australia, New Zealand and nearby Pacific islands.

European Exposure to Fuel Supply Disruptions

Europe is among the regions most exposed to aviation fuel supply interruptions linked to the conflict. The region depends heavily on jet fuel sourced from the Persian Gulf, with between 25% and 30% of European aviation fuel demand supplied from that area. Disruptions to shipping routes or production could therefore affect fuel availability across European markets. Alternative supply sources face limitations because approximately 84% of crude oil transported through the Strait of Hormuz is normally destined for Asian markets. If shipments are redirected, the amount available for Europe may remain limited.

Operational guidance has also affected airline routes. The European Union Aviation Safety Agency extended recommendations advising airlines to avoid the airspace of several Gulf countries, including Iran, Iraq, Qatar and Kuwait. The agency warned that the presence of air defense systems, cruise missiles and military aircraft increases the risk of misidentification and operational incidents in the region.

With Russian and Ukrainian airspace already restricted, European airlines have limited options for routes between Europe and Asia. Many flights now operate along a narrow corridor via Turkey’s northern Black Sea coast and across the Caspian region. The constraints increase fuel consumption and operational complexity for airlines operating long-haul routes.

The disruption has also affected travelers and evacuation operations. Mexico’s Ministry of Foreign Affairs (SRE) reported that 629 Mexican nationals have left six countries in the Middle East since the escalation began.