DUBAI/LONDON/CHICAGO: Shares in U.S. and European airlines fell on Thursday as oil prices soared and the U.S.-Israel conflict with Iran restricted much of the Middle East’s airspace, leaving governments scrambling to get stranded citizens home.
Most of the region’s airspace remains closed due to missile danger concerns, and authorities have chartered flights to evacuate tens of thousands of people and reserved seats for limited civilian service.
Traffic remained well below normal at Dubai International Airport, the world’s busiest travel hub. Activities there had come to a near standstill during the conflict, and widespread disruption to aviation and air cargo was expected to last.
“The last few days have been unprecedented,” Dubai Airports CEO Paul Griffiths said on LinkedIn on Thursday in his first public appearance since the airstrikes began.
Route changes, fuel costs Rail share Azerbaijan, part of a key air corridor between Asia and Europe, temporarily closed part of its airspace near Iran following a drone attack in the southern region of Nakhchivan near the Iranian border. Airline stocks have fallen since the first strike last weekend, with investors worried that route closures could be prolonged and fuel costs could remain high. Jet fuel prices have soared globally, hitting a record high in Singapore, S&P Global Platts said on Thursday.
U.S. airlines have limited exposure to Middle East routes and have not been forced into network outages due to conflicts like those affecting Gulf-based airlines. However, rising fuel prices pose risks to balance sheets.
Fuel is typically the second-largest expense for U.S. airlines after payroll, and many no longer hedge it, making them more susceptible to rising prices.
Without hedging, airlines would have to raise fares to offset higher costs. But because tickets are often sold weeks or months in advance, airlines have to absorb sudden spikes in the short term. Whether they can raise prices later will depend on demand, with airlines warning of rising tensions among price-sensitive travelers.
Airlines have also been hit, with jet fuel prices potentially rising faster than crude oil if refineries are shut down, shipping is disrupted, insurance premiums rise and regional supplies tighten.
“We expect (U.S.) airline profitability to take a hit in March due to the unexpected rise in fuel prices,” said Morningstar equity analyst Nicholas Owens. Shares of Southwest Airlines, American Airlines, Delta Air Lines, United Airlines and Alaska Airlines Group closed down 4% to 9%. The entire New York Stock Exchange Arca Airlines index fell about 6%.
In Europe, Air France-KLM ended lower, while Lufthansa, British Airways’ IAG and low-cost airline Ryanair also fell. Wizz Air, whose profits took a $58 million hit due to the dispute, fell 9%. Chief Executive Officer Joseph Varady told Reuters the impact should be limited to the financial year ending this month and that the company was moving supply capacity to Europe.
Most European and Middle Eastern airlines maintain relatively high fuel hedge levels, with coverage rates for the next three months ranging from about 50% to over 80%, Fitch Ratings said.
Some Asian stocks rebounded. Cathay Pacific, Qantas and Korean Air rose, while Japan Airlines fell slightly.
Major Chinese airlines such as Air China, China Eastern Airlines and China Southern Airlines fell 1.5% to 4% at both Hong Kong and Shanghai airports.
Natixis senior economist Gary Ng said Asian airlines were becoming sensitive to the situation in Iran, given the impact on routes, revenue and costs.
Increase in repatriation flights
Emirates and Etihad Airways currently operate limited flights from Dubai and Abu Dhabi via a secure air corridor. An Emirates spokesperson said more than 100 flights carrying passengers and cargo should depart from Dubai on Thursday and Friday.
Qatar Airways has announced that it will operate limited relief flights for stranded passengers starting Thursday from Muscat, Oman, to six destinations in Europe, including London, Berlin and Rome, and from Riyadh to Frankfurt. Governments from the United States to Canada and across Europe organized charter flights and helped secure seats on commercial services to repatriate their citizens. Since February 28, more than 17,500 Americans have returned to the United States.
A plane carrying Kenyans fleeing the UAE arrived in Nairobi on Thursday, including 13 children and their teachers who were on a school trip to the Gulf.
“We were stuck there for five days… It was scary. There were alarms every day and the children just got lost,” school principal Olive Tindica told Reuters, adding that children arrived at the teachers’ hotel rooms in tears as each explosion lit up the sky. “It was a very, very traumatic experience.”
(Reporting by Julie Chu and Joyce Chow in Hong Kong, Federico Maccioni in Dubai, Joanna Prusinska in London and Rajesh Kumar Singh in Chicago; Additional reporting by Li Gu and Edwin Waita in Shanghai; Writing by Anne-Marie Roantry, Adam Jordan and Rajesh Kumar Singh; Editing by Clarence Fernandez, Jean Harvey, Mark Potter and David Gregorio)
