US-IRAN CONFLICT DISRUPTS GLOBAL AVIATION, COULD COST INDUSTRY MORE THAN US$1 BLN 

By Zufazlin Baharuddin & Fatin Umairah Abdul Hamid

KUALA LUMPUR, March 1 (Bernama) -- The US-Iran conflict has significantly disrupted airport operations and is poised to have a material near-term impact on global aviation, with aggregate industry costs potentially exceeding US$1 billion (US$1 = RM3.89) should the situation intensify, an economist said.

Thousands of Middle Eastern flights have been cancelled, and airspace in the region has been closed after the US and Israel launched strikes on Iran on Saturday.

Major carriers, including Qatar Airways, Saudia, and Abu Dhabi-based airlines, have suspended or cancelled multiple flights since yesterday.

Meanwhile, Dubai International Airport, the world’s busiest international airport, reportedly sustained minor damage in an unprecedented retaliatory attack by Iran, with officials confirming that four staff members were injured.

Additionally, a drone targeted Kuwait International Airport, causing minor injuries to several employees and limited damage to Terminal 1.

Bahrain International Airport was also hit by an Iranian drone, resulting in material damage but no loss of life. Meanwhile, at Zayed International Airport in Abu Dhabi, United Arab Emirates, one person died, and seven others were injured following an incident.

Operational Impact on Airlines

Juwai IQI global chief economist Shan Saeed said airlines may need to restructure schedules or reduce capacity, which would impact connectivity.

“Rerouted flights typically add one to two hours of flight time, with each hour increasing fuel and crew costs by roughly US$6,000 to US$10,000 per long-haul flight. 

“Should these closures persist, cumulative costs could escalate to hundreds of millions monthly across the industry,” he told Bernama.

However, Shan opined that the ultimate economic cost depends on the duration of tensions, with longer disruptions causing broader economic ripple effects.

Meanwhile, Universiti Kuala Lumpur Business School Associate Professor Mohd Harridon Mohamed Suffian concurred that the value or financial cost would be vitally affected as the price for crude oil would be higher due to the increase in the risk premium.

He pointed out that rerouting flights to avoid conflict areas could likely result in higher operational costs, especially if longer routes are utilised.

He said that congestion on certain routes could also disrupt flight schedules and cause delays.

“Airlines should be proactive and optimise the utilisation of their resources and assets to mitigate this situation, and this could be achieved through the usage of astute mathematical models to offset the burgeoning cost,” he added.

Impact on Cargo Business, Air Traffic and the Economy at Large

Economist Professor Geoffrey Williams said the attacks on major hubs such as Dubai and Doha will disrupt hundreds of flights per day, affecting hundreds of thousands of passengers as well as cargo shipments and hundreds of thousands of tonnes of international air freight.

“This will have a big economic impact on airports and their passenger and cargo businesses. If the fighting intensifies and prolongs, the impacts will multiply,” he said.

Williams said that if the airspace closures persist, passengers and customers will unfortunately have to bear the cost.

“If they have insurance, then they can recover some losses. Airlines and airports are usually exempt because it’s beyond their control. They may offer compensation or alternatives, and they may be insured to cover any losses,” he said, adding that the conflict is expected to be short-lived and likely over within a week.

Domino Effect on Flight Planning

Mohd Harridon opined that the conflict could result in alterations to many factors affecting flight planning and trigger a domino effect.

“For example, extreme alterations to flight plans will require airlines to choose alternative emergency airports.

“Rerouting of flight paths would also require airlines to seek permission from alternative countries to utilise the airspaces of the designated countries,” he said.

“Utilisation of airspaces involved the payment of fees to these countries, and the values of these fees depend upon the weight of the aircraft and the distance flown within the borders of the designated countries,” he said.

Hence, Mohd Harridon said there is a possibility that airlines will incur higher daily operational expenses due to these fees.

Impact on Tourism Sector

Mohd Harridon said the tourism sector would be significantly affected, as several Middle Eastern countries and cities, such as Dubai and Qatar, depend on transit passengers due to their heavy investment in transit hubs.

“The loss of traffic would bring about income depletion to retail shops and other services that are integrated with these transit hubs in the Middle East.

“However, these depletions are within a time frame of the conflict, but companies that operate within these transit hubs should be prepared to face the economic and financial challenges that beckon them,” he added.

-- BERNAMA