Rising fuel prices lash airline sector as Iran conflict widens

Passengers whose flights were cancelled, wait at the departure terminal of Rafik Hariri International Airport in Beirut, Lebanon as many airlines canceled flights due to the conflict involving the United States, Israel and Iran. (AP Photo/Hassan Ammar)

Airline shares seesawed on Thursday, as some regained ground on more flights taking off from the Middle East while others dipped on spiking oil prices after U.S.-Israeli strikes on Iran sparked major disruption across the global aviation industry.

Governments have scrambled to arrange flights out of the Middle East for tens of thousands of citizens stranded by the intensifying conflict, which has closed most of the region’s airspace due to the risk of missiles hitting planes.

Takeoffs from Dubai International Airport more than doubled on Wednesday, the latest data from Flightradar24 show, as activity slowly restarts at the world’s busiest travel hub, which was brought to a near standstill amid the conflict.

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Traffic remains far below normal levels, with global aviation disruption likely to take some time to normalize as the conflict shows little sign of easing. Air cargo has also been hit, disrupting the movement of perishables and aircraft parts.

“The past few days have been unprecedented,” Dubai Airports CEO Paul Griffiths said on Thursday on LinkedIn in his first public remarks since the airstrikes began, adding that teams were pulling together and “navigating with confidence.”

Airlines shares are mixed

In a sign of the ongoing threat to airlines, Azerbaijan - part of one key flight corridor from Asia to Europe - temporarily closed part of its airspace near Iran after a drone strike in the southern Nakhchivan area near the Iranian border.

Flights appeared to still be crossing the country further to the north, according to realtime tracking from Flightradar 24.

The war has pummeled airline stocks since initial strikes last weekend on fears a protracted conflict could block key routes and raise fuel costs. Carriers have varying levels of Middle East exposure and different hedging strategies.

Some stocks rebounded on Thursday. Cathay Pacific Airways, Qantas Airways and Korean Air Lines rose. Japan Airlines edged down one per cent.

Major Chinese carriers such as Air China, China Eastern Airlines and China Southern Airlines fell between one per cent and four per cent in both Hong Kong and Shanghai.

Gary Ng, a senior economist at Natixis, said Asian airlines were sensitive to Iran’s situation given the impact on routes, revenue and costs.

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In Europe, Air France KLM was slightly higher, but Lufthansa, British Airways-owned IAG and budget carrier Ryanair dipped. Wizz Air, which flagged a US$58 million hit to profits from the conflict, tumbled 10 per cent.

Wizz Air’s CEO told Reuters the financial hit should be limited to its current financial year that ends this month and said that the firm was shifting its capacity towards Europe.

Repatriation flights ramp up

Emirates and Etihad are now operating limited services from Dubai and Abu Dhabi through safe air corridors. An Emirates spokesperson said more than 100 flights should depart from Dubai with passengers and cargo on Thursday and Friday.

Qatar Airways said it would run limited relief flights from Thursday for stranded passengers, departing from Muscat in Oman to six European destinations including London, Berlin and Rome as well as from Riyadh to Frankfurt.

Governments from the U.S. to Canada and across Europe have arranged charter flights and helped secure seats on commercial services to repatriate citizens. More than 17,500 Americans have returned to the U.S. since Feb. 28.

A flight carrying Kenyans and others fleeing the UAE arrived in Nairobi on Thursday, including 13 children and their teachers who had been on a school trip to the Gulf.

“We were stuck there for five days ... it was scary, every day we would get alerts and the children would just lose it,” school director Olive Tindika told Reuters, saying the children arrived in tears at teachers’ hotel rooms whenever explosions lit up the sky.

“It was a very, very traumatizing experience.”

Airline sector outlook tied to Iran conflict

Jet fuel prices have soared globally since the strikes on Iran, hitting an all-time high in Singapore on concerns over supply disruption, S&P Global Platts said on Thursday.

Many Asian airline shares have rebounded or pared double-digit declines in recent days, though analysts said the gains may not last.

“I consider this rebound to be primarily short-term in nature,” said Kenny Ng, a securities strategist at China Everbright Securities International. “Its sustainability will still depend on the ongoing situation in the Iranian conflict.”

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Restrictions on airspace have forced airlines to reroute flights, load extra fuel or make additional refueling stops to guard against sudden diversions or longer flights on safer routes. Prices on some key global routes have risen sharply.

Marooned tourists and some expatriates have also tried to find their own way out of the Middle East through Saudi Arabia or Oman, where airspace remains open.

(Reporting by Julie Zhu and Joyce Zhou in Hong Kong. Additional reporting by Li Gu in Shanghai and Edwin Waita. Writing by Anne Marie Roantree and Adam Jourdan. Editing by Clarence Fernandez, Jan Harvey and Mark Potter)