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Team Perspective
George Dimitroff, Head of Valuations, Cirium Ascend Consultancy
As the world tries to grasp the consequences of the escalating conflict in Iran and the wider Middle East, the following sets out Cirium Ascend Consultancy’s early thoughts.
The conflict affects aviation in three ways:
- Airspace closures
- Rising fuel prices
- Potential for softer demand – both in the region and globally
Airspace closures
- These are already affecting the big three Gulf carriers severely (Emirates, Qatar Airways, and Etihad Airways) but there is risk they may extend to others such as Oman Air, Saudia or beyond
- 20% of all passengers travelling between Europe and Asia-Pacific (incl. Australasia) in 2025 travelled on Middle Eastern carriers – that is 1 in 5 passengers
- 10% of all US passengers travelling to Asia-Pacific go through the Middle East hubs.
- Direct flights from Europe to Asia are also affected because they are now limited to just one narrow corridor over Georgia and Azerbaijan, or a longer southern route around Saudi Arabia which adds flight time and fuel burn
- If Azerbaijan airspace were to close it would put even greater pressure on long-haul flights between Europe and Asia-Pacific, except for those airlines that can overfly Russian airspace (Chinese and Indian carriers, for example)
- A significant portion of passengers traffic that passes through ME hubs may now decide to avoid the risk of connecting there and book direct flights to their destinations. This could have a positive uplift for European and Asian carriers and could increase demand for long range widebody aircraft especially Airbus A350s, and Boeing 777s and 787s. However, such upside may not materialise if European and Asian economies suffer as a result of higher energy costs and overall demand for travel is affected
Rising fuel prices
- The price of a barrel of oil spiked from $60 in January to already exceed $100 – a more than 50% increase
- While peace negotiations could lead to Brent crude oil prices easing modestly in April, energy information provider ICIS anticipates a “gradually declining but persistent risk premium to remain embedded in prices for the remainder of the year, reflecting continued uncertainty around regional stability”
- Crack spreads are increasing, meaning Jet A1 fuel is affected even more
- US airlines are completely unhedged when it comes to fuel price. Southwest Airlines was one of the last to abandon its hedging programme a year ago (March 2025)
- European and Asian airlines are much better hedged – many have between 45% and 85% of their needs for at least H1 2026 hedged at around $60/bbl or less, some even until the end of the year:
- Hedged airlines include (but not limited to) Air France-KLM, Air New Zealand, Cathay Pacific, China Eastern, EasyJet, Finnair, Icelandair, Lufthansa, Norwegian, Qantas, Ryanair, Singapore Airlines, Virgin Australia and Wizz Air
- Hedged airlines will be much less exposed to fuel price increases, while US carriers likely to be impacted harder
- A weaker US dollar will also benefit carriers outside the USA whose revenue is in other currencies
- Some carriers hedge against crude, others Jet A – crude hedges still leave partial exposure to crack spread
- Cirium analysis and modelling shows that the global airline industry stops making profit (i.e. breaks even) somewhere between $72 and $76 per barrel (sustained, longer term), depending on assumptions. Above that fuel price the industry starts to make losses
- With higher fuel prices there are two implications to demand for aircraft
- A greater push for newer-generation, more fuel-efficient aircraft
- Increased reluctance for airlines to extend leases for previous-generation aircraft leases or to retain owned aircraft in service for longer
- In some cases, the increased fuel costs may pressure airlines to offer less in lease rental especially for out-of-production aircraft
Potential for softer demand
- There is currently a serious risk of Asian, and to a lesser extent European economies, being affected by both higher energy costs and possibly fuel shortages if the Strait of Hormuz remains de facto closed for longer, and stockpiles run dry
- For the past few years, we have considered many scenarios that are focussed on aircraft supply increasing to meet demand. For the first time since the Covid-19 pandemic, we again must start considering the risk to demand, this could be especially critical as the manufacturers are making their biggest ramp-up in production over the next three years or so
- If the conflict extends beyond the next month or two, the risk of an impact on air-travel demand becomes exponentially greater, and could firstly start to impact aircraft lease rates, and eventually aircraft values with previous-generation, out-of-production types being more vulnerable
- Airlines operating older, less-fuel efficient widebodies on long-haul services would be worst affected, unless they are hedged at low levels
