Asian airfares look set to fall as jet fuel prices ease on US-Iran deal

Asian travellers could see some relief from high air fares in the coming weeks as jet fuel prices ease after signs of cooling US-Iran tensions. But analysts predict cheaper tickets will emerge unevenly, with budget carriers likely to move faster than full-service airlines.
More Asian low-cost carriers are expected to follow AirAsia Group’s lead after it announced fare reductions on Monday, although the response is likely to be gradual, according to experts.
The reductions came after global jet fuel prices fell from a March peak of US$242 per barrel to around US$112 following the announcement of an interim US-Iran peace deal, stirring hopes that shipping traffic would gradually resume through the Strait of Hormuz, a key route for Asia’s oil imports.
Aviation fuel, one of the costliest items for airlines, surged in the wake of the Iran war, forcing carriers to raise fares, impose fuel surcharges, suspend routes or trim capacity.
The Malaysia-based budget airline had cut 10 per cent of its flight capacity and suspended underperforming routes because of soaring fuel costs but now expects to fully restore capacity by the end of August.

“AirAsia’s move is a significant signal to the market, but I would expect the pricing response to be asymmetric and gradual rather than a broad industry-wide reset,” said Mayur Patel, regional commercial and industry affairs leader for Asia-Pacific, Middle East and Africa at OAG, a travel data and aviation analytics firm.
“Budget carriers will lead and lead quickly,” he said.
Other low-cost carriers in the region with similarly high fuel cost exposure, such as Cebu Pacific, Scoot and IndiGo, will be under competitive pressure to follow, according to Patel.
AirAsia’s fare reduction reflected the direct structural link between fuel cost movements and ticket pricing, he said. The airline says it will now review fares on a weekly basis.
Price sensitive
Although Singapore jet fuel prices have retreated significantly, they are still materially above the pre-Iran war crisis level of around US$80 per barrel, according to Patel.
“Until fuel stabilises closer to historical norms, full-service carriers are unlikely to move aggressively on base fares,” he said.
Full-service carriers such as Cathay Pacific, Singapore Airlines, ANA, Korean Air and Japan Airlines would remain focused on maintaining critical international connectivity rather than implementing emergency discounts, Patel said.
“What we are more likely to see from network carriers is a quiet rollback of fuel surcharges imposed during the peak crisis period, which achieves a similar effect for consumers without the optics of a formal fare cut.”
Hong Kong-based Cathay Pacific on Tuesday said it would lower fuel surcharges on most passenger flights for the second time in less than two months.

From July 1, passengers departing from Hong Kong for destinations in North America, Europe, the Middle East, Africa and the Southwest Pacific will pay HK$1,164 (US$148.48) per sector, down 14.5 per cent from HK$1,362.
Gary Bowerman, an Asia travel, tourism and consumer analyst, said Southeast Asian markets were “very alert” to the potentially damaging outcome of higher air fares.
“Airlines in Southeast Asia are nervous that continued higher air fares could cause travellers to delay trips on a ‘wait-and-see’ basis until prices are lowered or, worse, that they could trigger a regional demand slowdown,” he said.
While the premium and luxury segments are likely to be more sheltered, the mass market – the engine of tourism arrival volume – is highly price-conscious across Southeast Asian markets, according to Bowerman.
“All eyes will be on the outcome from the Chinese summer school holidays and whether visitor volumes from China across Southeast Asia have held up. If not, you may start to see a panic across the travel and tourism value chain as we move into the third quarter,” he said.
Chinese summer school holidays generally run from early July to the end of August.
“Intra-Asian travel has been a powerful force of the region’s recovery since Covid, but that recovery remained more fragile in some countries than others,” Bowerman said.
Gradual return
Shukor Yusof, founder of Singapore-based Endau Analytics, said he would not be surprised if low-cost carriers delayed action until there was more clarity on the Middle East situation.
“Not all Asian carriers will be quick to reestablish flights suspended or disrupted during the Iran conflict as many remain cautious about the situation. It will take time to repair the loss of confidence,” he said.
AirAsia, which went through a difficult business period in the first half of this year, was responding to the gradual realignments of jet fuel prices and passenger demand, he said.
The group missed payments to some suppliers and asked to push back rental payments on more than 16 planes after higher jet fuel prices strained its finances, Bloomberg reported on Wednesday.

In terms of restoring flight capacity, AirAsia was being selective, and unprofitable routes cut during the fuel crisis would not be automatically reinstated, Patel said.
Passenger flights across the Middle East are slowly resuming operations after months of disruption due to the Iran war, which particularly affected Asia-Europe connections as the Gulf region is a connecting hub.
“Gulf carriers are recovering faster than their Asian counterparts on these routes,” he said.
Asian carriers treating the Gulf as a transit corridor rather than destination markets would be slower to normalise as their routing decisions were affected by safety protocols and insurance requirements, he added.
“We are seeing a scaling up of flights returning to the Middle East by Asian carriers,” said Hannah Pearson, director of Pear Anderson, noting that Singapore Airlines’ low-cost airline subsidiary Scoot resumed flights between Singapore and Jeddah on Monday after a four-month suspension.
Airlines would prioritise routes that were performing well, while relatively new ones would take time to be reinstated, she said.
“Connectivity and affordability will continue to be the main factors keeping travellers at home – and both will take a while to stabilise,” Pearson said.