Flight detours and high oil prices raise costs for Gulf airlines

• Disruption to peak season
• Rerouting can add 90 minutes
• More fuel as price rises

Gulf carriers are confronting escalating operational costs as the Israel-Iran conflict disrupts regional air travel and drives up fuel prices.

Airlines across the region have adjusted flight paths, with many suspending services to parts of the Levant and diverting European-bound traffic via the Red Sea, Egypt or northern Saudi Arabia.

In some cases the detours are adding up to 90 minutes to flight times from the UAE to Western Europe.

For wide-body aircraft such as the Boeing 777-300ER or Airbus A380, this equates to an estimated $6,500 in additional fuel costs per flight, potentially totalling $4 million per month on scheduled flights just to the UK, according to Linus Bauer, founder of BAA & Partners.

The situation is exacerbated by a surge in oil prices in response to the conflict, with Brent crude futures rising by 1.6 percent to $74.40 per barrel as of Tuesday morning.

“Gulf carriers have resilient cost structures and strong fuel hedging strategies,” Bauer said.

“The real strategic concern lies in maintaining schedule integrity and safeguarding premium transfer flows.”

Emirates, Etihad Airways, Flydubai, Qatar Airways and Air Arabia have all implemented route changes or suspensions.

On Tuesday Wizz Air became the latest carrier to announce flight suspensions to and from Tel Aviv and European flights to Amman until September 15. The airline also said in a statement it will avoid overflying Israeli, Iraqi, Iranian and Syrian airspace “until further notice”.

• Middle East airspace shut after Israel strikes Iran
• John Grant: Regional airlines will remain fluid in the Israel-Iran conflict
• Gulf airlines suspend routes and reroute flights

The disruption comes as the busy travel season begins, compounding pressure on capacity and margins. 

“For airlines, this escalation could not have come at a worse time,” said Nishit Lakhotia, head of research at Bahrain’s Sico Bank.

“June to August is the peak summer travel season where airlines make disproportionate profits from high summer fares.”

Middle East airlines were forecast to generate $27.20 in profit per passenger this year, according to estimates from the International Air Transport Association.

Reuters/Mohamed Azakir

However director general Willie Walsh cautioned at the organisation’s annual general meeting earlier this month: “Any new tax, increase in airport or navigation charges, demand shock, or costly regulation will quickly put the industry’s resilience to the test.”

The conflict is also placing strain on the share price of the Gulf’s two listed carriers, Kuwait’s Jazeera Airways and Air Arabia.

Jazeera Airways has seen its share price fall by 13 percent since June 12, while Air Arabia has dropped just over 8 percent in the last five days.

“Given the strong stock performance over the past year there is a sizeable expectation on earnings growth year on year for both airlines, which is at a risk of being missed,” said Lakhotia.

Despite the ongoing uncertainty, Saudi low-cost carrier Flynas is scheduled to list on the Tadawul tomorrow (Wednesday).

Although the retail tranche of its initial public offering was oversubscribed four and a half times, Lakhotia cautioned: “This is not the best time to list, given disruption in air travel within the region due to ongoing conflict.”