Middle East aviation chaos tests airlines, airports and insurers

The fallout from aviation disruptions triggered by the Israel-U.S. strikes on Iran and Tehran's retaliatory attacks will hinge almost entirely on how long the conflict lasts, Fitch Ratings said, with airlines, airports, insurers and aircraft lessors all facing varying degrees of exposure.

Fitch said its baseline expectation — that hostilities would last less than a month — should contain the damage for rated issuers, but cautioned that its base case carried "particularly high uncertainty" and that a prolonged disruption "could have more significant implications for affected sectors and issuers, particularly smaller and less diversified ones."

Flights cancelled, hub airports snarled

Since the strikes began on Feb. 28, aviation across the Middle East has been severely disrupted by widespread airspace closures and restrictions. Major hub airports including Dubai, Abu Dhabi and Doha have experienced significant schedule disruption and congestion, with more than 15,000 flights reportedly cancelled across seven major regional airports between Feb. 28 and March 5, affecting more than 1.5 million passengers. Some diverted flights have landed at European airports.

Airlines face lost revenue on unflown services, with the sharpest exposure among carriers whose hubs sit in directly affected countries. Fitch said flight operations over the UAE and Qatar appear particularly constrained — significant given the scale of the hub carriers based there. For Fitch-rated network airlines elsewhere in Europe, Middle East and Africa, exposure to the broader Middle East region does not exceed a high single-digit percentage of traffic volume.

Beyond lost revenue, airlines are absorbing higher costs from longer routings, extra fuel burns, additional technical stops, crew overtime, and passenger accommodation and handling expenses. Fitch noted that passenger compensation liability is likely to be limited because the conflict is outside carriers' control, though airlines may still face meal and accommodation costs and may need to issue refunds or vouchers on cancelled services. Higher fares on affected and adjacent routes could partially offset the damage.

Fuel costs present a further headwind, though most EMEA carriers maintain relatively strong hedging positions. Fitch said hedge coverage for the next three months ranges from around 50% to more than 80% across the region's airlines.

Mixed picture for airports and hotels

The impact on Fitch-rated European airports is likely to be uneven. Lost revenue from declining point-to-point traffic from the Far East — and the knock-on effect on retail spending per passenger — could be partly offset by higher ancillary income such as parking fees and, where applicable, regulatory protection against traffic volatility.

Fitch-rated lodging companies with Middle East exposure are predominantly large global operators with broad geographic diversification. The agency said they should be able to absorb travel and booking disruption stemming from the regional conflict, with any hit potentially cushioned further by stronger revenue per available room in Mediterranean and Asia-Pacific markets.

Insurers and lessors face limited but uneven risk

For insurers, the agency said aviation policies may give carriers the right to cancel cover, and that war-related pressure is most likely to emerge on less diversified portfolios with heavy Gulf exposure. While war cover would typically relate to aircraft damage, business interruption policies usually exclude war risks. Reinsurers may respond by reducing cover or raising attachment points, increasing the burden on primary carriers.

Aircraft lessors rated by Fitch face the least exposure of the sectors assessed. The agency said their globally diversified fleets, well-managed regional concentrations, fixed-rate long-term lease revenues, strong liquidity buffers and staggered debt maturity profiles should absorb any adverse disruption in the sector.