The disruption to aviation across the Middle East following military strikes involving Israel, the US and Iran could badly damage the aviation industry and related sectors if the war persists, according to Fitch Ratings, which warns that the duration of the crisis will determine the scale of the financial impact.

Fitch said the immediate shock to regional aviation since the strikes on February 28 have already been severe, with widespread airspace closures forcing airlines to reroute, divert or cancel services across one of the world’s busiest transit corridors.

The supply of aviation fuel to world markets is also in danger. While many countries have strategic reserves of oil and gasoline, the cushion of aviation fuel is much thinner.

Commercial flights in chaos

The ratings agency noted that “the duration of the aviation disruption … will be fundamental to determining the implications for affected sectors, including airlines, airports, lodging, insurance and lessors”.

Major hubs including Dubai, Abu Dhabi and Doha have faced operational disruption and congestion. More than 15,000 flights were cancelled across seven major regional airports between February 28 and March 5, affecting more than 1.5mn passengers, according to the agency’s assessment.

Fitch’s base case assumes the conflict will remain relatively short-lived. “Our baseline expectation that the conflict in the Middle East will last less than a month should limit the implications for Fitch-rated issuers in sectors affected by the aviation disruption,” the agency said, while cautioning that “our base case is subject to particularly high uncertainty”.

Airlines operating routes directly through affected airspace face the most immediate financial pressure through lost revenue and higher operating costs. Fitch noted that “flight operations over the UAE and Qatar appear particularly constrained”, a significant factor given the scale of hub carriers based in those countries.

At the same time, disruption is increasing costs through longer routings, technical stops and additional staffing expenses. However, the agency said some of the impact could be offset because “disruption often drives higher fares on affected and adjacent routes”.

The broader aviation ecosystem appears more insulated for now. Fitch said globally diversified hotel groups and aircraft lessors should be able to absorb temporary shocks, while insurance exposure may depend on portfolio concentration in the Gulf.

For aircraft leasing companies in particular, the agency said the immediate credit effect remained limited, citing “globally diversified fleets and generally well-managed regional concentration exposures”.

The impact on Fitch-rated European airports is likely to be mixed, with lost revenue from declining point-to-point traffic from the Far East and the knock-on effect on retail spending per passenger, potentially offset by higher ancillary revenues such as parking fees, and, where applicable, regulatory protection against traffic volatility.

Fitch-rated lodging issuers with exposure to the Middle East are primarily global companies with a high degree of geographical diversification. Given the regional nature of the conflict, they should be able to absorb the impact of travel and booking disruption. The effect may be further mitigated by higher revenue per available room in the Mediterranean and APAC regions.

Like with the oil tanker operators, aviation policies may give insurers the right to cancel cover. War cover would typically relate to aircraft damage, although business interruption policies usually exclude war risks. Pressure is most likely to emerge on less diversified portfolios with heavy exposure to the Gulf. Reinsurers may reduce cover or raise attachment points, increasing exposure for primary carriers.

The impact of the conflict on Fitch-rated aircraft lessors is very limited, reflecting their globally diversified fleets and generally well-managed regional concentration exposures. Credit profiles also benefit from predominantly fixed-rate, long-term contracted lease revenues, strong liquidity buffers and well-laddered debt maturity profiles, which should mitigate the effects of any adverse disruption in the sector.

Aviation fuel prices rising

Airlines across Europe, the Middle East and Africa are also preparing for a spike in fuel costs that could compound pressure from weaker revenues due to flight disruptions, although widespread hedging programmes are expected to soften the blow in the first months, says Fitch.

The price of European jet fuel was up by over 70% by the end of the first week of the war to its highest level since June 2022, the FT reports.

Jet fuel is typically one of the largest operating expenses for airlines, and the rising cost of oil is already spilling over into aviation fuel prices.

Industry data indicate that most airlines in the region currently maintain relatively high hedging coverage. Hedge levels for the next three months range from roughly 50% to more than 80%, providing a temporary buffer against sudden increases in fuel prices.

The practice is particularly common among larger network airlines and major Middle Eastern carriers, which tend to operate long-haul fleets with high fuel consumption.

However, hedging does not eliminate risk entirely. As existing contracts expire, carriers may face higher costs if fuel prices remain elevated and the conflict goes on for longer than the one-month base case. The staggered nature of hedging programmes means that airlines gradually become more exposed to prevailing market prices as time passes after the first month of the conflict is over.

Airlines often attempt to offset higher costs through fuel surcharges or adjustments to ticket pricing, though competitive pressures can limit how much of the increase can be passed on to passengers.

The extent of the impact will vary by airline depending on fleet efficiency, route structure and the scale of existing hedging positions. Carriers with newer aircraft typically benefit from lower fuel burn, while those with stronger hedging coverage may delay the financial effects of higher oil prices.

With hedge coverage between about 50% and more than 80% for the next quarter, many EMEA airlines have secured a short-term cushion, though their exposure to market fuel prices will increase as those contracts roll off in the months ahead.