This article first appeared in The Edge Malaysia Weekly on March 16, 2026 - March 22, 2026

THE escalating cost of jet fuel is threatening the fragile recovery of airlines, whose profits have already been weakened by ongoing supply chain disruptions.

The global average jet fuel price reached its highest level since the start of the US-Israel war with Iran at US$157.41 (RM620) a barrel in the week ended March 6, according to the S&P Global Platts Jet Fuel Index, up 58.4% from US$99.40 a week earlier and far outpacing gains in crude oil.

In Asia, a number of carriers — such as Malaysia Airlines, Firefly, Batik Air Malaysia, Cathay Pacific Airways, Hong Kong Airlines and Air India — have announced fare and fuel surcharge increases in response to the rising fuel bill.

Analysts say airlines with limited fuel hedging are the most vulnerable to rising prices.

“If jet fuel prices remain elevated, many carriers will be affected, particularly those with limited hedging, regardless of whether they are full-service carriers (FSCs) or low-cost carriers (LCCs),” an aviation analyst at a foreign research firm tells The Edge.

Major carriers in the US and China reportedly have no hedging contracts in place, leaving them fully exposed to fuel price volatility. In contrast, Asia-Pacific airlines such as Singapore Airlines (SIA), Australia’s Qantas and Air New Zealand regularly hedge their fuel costs, helping cushion price swings.

Among LCCs, BIMB Securities Research identifies AirAsia X Bhd (KL:AAX) as having no fuel hedges.

“If elevated fuel prices persist, AAX is likely to face material earnings pressure in the coming quarters,” the research house cautioned in a March 6 report.

According to Hong Leong Investment Bank Research, jet fuel accounts for about 30% to 40% of AAX’s cost structure, while 60% to 70% of its total costs are denominated in US dollars.

“For Malaysia-based airlines, they are highly sensitive to oil price movements because their earnings base is already relatively low. They are no longer generating billions of ringgit in profits like before. So whenever there is a significant movement in costs — especially oil prices, which can account for as much as 60% of operating costs — they will be hit,” the analyst says.

“However, the impact will likely come more from the surge in jet fuel prices than from flight rerouting or cancellations, as Malaysian airlines have limited exposure to Middle Eastern routes,” the analyst adds.

AAX, which in January completed the acquisition of AirAsia Bhd and AirAsia Aviation Group Ltd from Capital A Bhd (KL:CAPITALA), posted a lower net profit of RM191.75 million for the financial year ended Dec 31, 2025 (FY2025), down 16.3% from RM229.14 million in the previous year. The decline was due to higher operating and maintenance costs associated with fleet reactivation and new route launches.

Meanwhile, Malaysia Aviation Group Bhd (MAG), the parent company of Malaysia Airlines, is expected to deliver a third consecutive year of profitability in 2025, following a net profit of RM64.66 million in 2024.

Shukor Yusof, founder and analyst at aviation consultancy Endau Analytics, agrees that airlines without fuel hedging such as AAX are most exposed to fuel price volatility.

“If AAX is buying at spot prices, it will be badly hit in the current environment. While the airline can pass on some of the additional costs, it is still a low-cost carrier. If LCCs impose fuel surcharges, they are no longer truly low-cost, which could affect bookings,” he says.

The deteriorating situation has also raised questions over AAX’s plan to launch flights to London via Bahrain from June 26.

“Who wants to stop in Bahrain now? And will Bahrain even open its airspace by then? These are hiccups, though they may only be temporary,” observes Shukor.

At least eight countries in the Middle East have closed or heavily restricted their airspace — including Iran, Israel, Iraq, Jordan, Qatar, Bahrain, Kuwait and the United Arab Emirates — after the conflict erupted on Feb 28.

Shukor points out that the spike in oil prices has also created uncertainty for airlines like Sarawak-owned AirBorneo, which is expected to begin jet operations in the third quarter of 2026.

“Until the war settles, we don’t know what will happen next week or the week after. Even if there is a ceasefire, travellers may still avoid the Gulf region.

“These hostilities have also altered perceptions of Dubai and Doha, the hubs for Emirates and Qatar Airways, as safe and convenient transit points for long-haul flights,” he notes.

In a LinkedIn post last Thursday, Capital A CEO Tan Sri Tony Fernandes remarked on the current situation for airlines.

“Right now, airlines feel pretty powerless and are at the mercy of politicians around the world who have different agendas. There is little visibility on how this will affect our businesses, with oil prices fluctuating by the day,” he wrote.

Critics warn that some LCCs could be forced to ground planes if jet fuel becomes unaffordable or inaccessible, with budget airlines operating on thin margins potentially at risk of collapse if the current environment persists for more than three months.

However, analysts tell The Edge that Malaysia-based airlines are likely able to withstand the current oil shock.

“Airlines most at risk are those operating in the Middle East or crossing Middle Eastern airspace, which are directly affected by airspace closures in the region,” the foreign research firm analyst says.

“For Malaysia-based airlines, they managed to outlast Covid-19, when there was an almost complete shutdown of passenger air travel. So they should be able to weather the current crisis as they can still pass some of the additional costs on to passengers,” he adds.

One factor in the airlines’ favour is the resilience of air travel demand.

In a March 5 report, Maybank Investment Bank (Maybank IB) aviation analyst Samuel Yin Shao Yang noted that so far, operations of AAX have not been negatively affected nearly as much as the Middle Eastern airlines. AAX operates flights to Istanbul (Türkiye), Jeddah (Saudi Arabia) and Tashkent (Uzbekistan).

He estimated that every US$1 per barrel increase in average jet fuel price above Maybank IB’s assumption of US$85 per barrel would reduce its earnings estimates by about RM75 million per year for AAX.

“All else being equal, we estimate that average jet fuel prices at US$125 per barrel, if prolonged, would lower our earnings estimates to RM1.4 billion net loss per year from RM900 million net profit per year. That said, we believe that AAX can neutralise the impact of higher jet fuel prices by raising its average fare by 19% to RM285 to RM290 per passenger but it would come at the expense of load factors,” he said.

“We gather that average load factors could be cut by one to four percentage points (ppts). We estimate that every 1ppt reduction in average load factor below our forecast of 85.5% could lower our earnings estimates by 23% per year. We maintain our earnings estimates unless heightened jet fuel prices persist. Should jet fuel prices remain high, we believe it will be crucial for AAX to manage load factors,” Yin added.

An industry expert says the sharp rise in jet fuel costs is likely to affect LCCs such as AAX more than FSCs as their customers tend to be more price-sensitive.

“Malaysia Airlines is slightly more premium, although it will still be affected,” the expert says.

While Capital A has disposed of its aviation business to AAX, the group still holds a 19.5% stake in the long-haul carrier.

“It won’t affect their earnings directly, but it could affect valuations,” the expert says.

That said, Shukor says there may be some winners in the near term. He sees SIA actually benefiting from travellers seeking alternative routes between Europe and Asia, particularly passengers from Australia and New Zealand, and bypassing Middle Eastern airspace.

“Malaysia Airlines won’t benefit as much because its network is smaller. In Europe it only flies to Paris and London, while in the Middle East it serves Jeddah, Madinah and Doha,” he says of the national carrier, which has suspended its Doha services until March 20.

Shukor also expects Cathay Pacific to be better positioned than many competitors, as it can skirt current war zones, along the relatively safe corridors of Central Asia or simply fly through the vast Russian airspace as a Chinese carrier.

“That gives it more flexibility. It can fly to almost anywhere in Europe more efficiently and at lower cost,” he says, adding that while airlines may impose fuel surcharges to offset higher operating costs, a prolonged disruption could still weigh on their balance sheets.

He also notes that major airlines are unable to completely absorb the capacity lost from Gulf carriers due to the sheer volume, with about 23,000 flights having been cancelled since Feb 28.

Shukor expects the Iran conflict to put a damper on the Visit Malaysia 2026 campaign as fewer Europeans and Americans travel to Asia.

“Mostly visitors from Southeast Asia and South Asia will come. Middle Eastern tourists would normally travel to Malaysia as well since the country is a popular Muslim destination, but there are currently no flights out of the Middle East — all are suspended, except for some charters.

“If the conflict ends next week, the damage will be contained. But if it drags on, it could get worse. There is a real possibility that some airlines, especially those from the Middle East, could go bust,” he adds.

Association of Asia Pacific Airlines director general Subhas Menon expects airfares to remain elevated as capacity remains extremely constrained.

“We always say prices are a function of demand and supply. Right now, there is a shortage of supply [as Gulf carriers are operating limited flight schedules due to airspace closures], which is pushing ticket prices sharply higher.

“On top of that, fuel costs are spiking. While statements by US President Donald Trump could potentially lower crude oil prices, the reality is that fuel supply remains tight. With both capacity and fuel constrained, operating costs are rising. And we are still in the middle of a supply chain crisis,” he notes.

He points out that the impact is not limited to any single region. “Asia-Pacific airlines are affected because we are an interconnected industry. What happens in one part of the world has a ripple effect elsewhere. Everyone will feel it.”

Subhas says there is no real distinction between LCCs and FSCs when it comes to fuel and supply chain pressures. “Overall costs may be higher for FSCs because of network-related expenses, whereas budget carriers operate point-to-point. But in terms of fuel impact, it is significant for any business model.

“All airlines are being affected by this war — supply chains, fuel, and airspace are all constrained. Many supplies come from Western countries and must cross Middle Eastern airspace, which is currently restricted. Then there’s the Strait of Hormuz, also affected. Add in the India-Pakistan tensions and the Ukraine-Russia war, and supply chains are being disrupted globally.

“Spares will take longer to arrive and cost more,” he emphasises.

AAX has seen its share price decline sharply, falling by about 30% year to date. Shares in other Asian carriers have also slipped during the same period, including Thai Airways International PCL, Japan Airlines Co Ltd and Bangkok Airways PCL, which were down 10%, 9% and 5%, respectively.

In contrast, shares of SIA, Cathay Pacific and Capital A have held up better, with their shares rising between 4% and 5%. 

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