The ongoing Iran conflict has further tightened global oil supply expectations and increased financial strain on airlines.

According to the International Air Transport Association’s latest fuel monitor, the global average jet fuel price is now close to US$180 per barrel, after rising sharply from about US$96 per barrel before the conflict began.

Industry watchers say while airlines can absorb part of the shock, there is a clear limit to how much pain they can take before higher fares, weaker demand, and possible flight cuts begin feeding back into the broader economy.

FMT takes a closer look at why the issue matters in Malaysia, where strain is building, and why calls are growing for more targeted intervention.

Aviation is more than airlines

Aviation expert and economist Harridon Suffian of Universiti Kuala Lumpur Business School said the aviation industry acts as a catalyst for other sectors, particularly tourism.

The stakes are especially high in view of Visit Malaysia 2026, which targets 47 million international arrivals and RM329 billion in tourism receipts.

“When there are substantial contractions in the aviation sector, a chain reaction would materialise,” he said.

A decline in passenger traffic weakens airline finances, which can then lead to furloughs, reduced employee allowances, and lower household spending.

Hotels, travel agencies, ground transport operators, airport retailers, and food and beverage businesses depend on consistent passenger volumes. A slowdown in the aviation industry can threaten demand across the broader economy. Cargo operators also face mounting pressure because air freight costs are closely tied to fuel use over distance.

As operating costs rise, companies eventually pass on those increases, which can dampen demand and narrow margins.

The maintenance, repair and overhaul (MRO) segment is not insulated either.

Harridon said higher transport costs raise the price of spare parts, components, and specialist equipment needed for aircraft repairs and maintenance, adding to financial stress across the aviation support chain.

Aviation analyst Shukor Yusof of Endau Analytics said while there is no jet fuel shortage for now, a prolonged conflict could lead to one within two to three months, just as airlines enter their peak season.

Airlines can charge higher ticket prices to cover higher fuel costs, but Harridon warned that “this would deflate the volume of passenger traffic, and lead to the decrease of the number of tourists coming to Malaysia”.

Airlines can only absorb so much

Harridon said most airlines can realistically absorb higher fuel prices for only about two weeks on average before passing costs on to consumers.

Shukor said the impact will not be felt equally. Airlines that are well-capitalised and hedged are better placed to weather the shock, while weaker or unhedged carriers are likely to feel the pain much more quickly.

“The latter carriers are the ones who will feel the pain most, either from lack of cash or being unhedged, or both,” he said.

The Edge reported that Air Asia had the worst-performing stocks in the world in March due to no jet-fuel hedge, meaning the carrier must pay ballooning market prices.

Other carriers such as Malaysia Aviation Group (MAG) had taken steps to manage fuel volatility, having hedged about 36% of its fuel needs in the first quarter of 2026 and about 50% in the second quarter.

If conditions worsen, airlines are unlikely to rely on fare increases alone. Shukor pointed to Europe, where some carriers have already started reducing flights, and said similar responses could emerge in Asia.

Why targeted relief is back in focus

Some support has already been extended to airlines, including credit rebates and payment relief measures from the transport ministry and the Civil Aviation Authority of Malaysia (CAAM).

Harridon described CAAM’s extension of due payments for certain fees as a positive step, but said relief may need to be prolonged if conditions remain unfavourable.

“Airlines with strong performance and economic contributions should be given financial relief in accordance with their offerings to the nation,” he said.

He added that a blanket approach could risk rewarding poor financial discipline.

Shukor was more direct, saying more needs to be done. “CAAM has led the way, others need to follow,” he said.

That is where calls for targeted relief are gaining traction – for instance a temporary moratorium allowing airlines to defer jet fuel payments and other charges owed to airport operators – would buy carriers breathing room without writing off the debt.

Harridon said a moratorium would be a prudent approach because it would give airlines room to consolidate operations and redirect financial resources towards immediate needs such as wages, catering, maintenance, and ground handling.

He said this kind of breathing space could help carriers preserve flight volumes and maintain the economic vibrancy linked to travel spending.

“Economic data indicates that individuals who travel spend significantly in the domestic economy. If there are fewer flights, this signifies less volume of passengers and less volume correlates to less spending by (tourists) in the domestic economy.

“Thus, the moratorium is vital to keep flight volume at its nominal value and thus retaining the needed economic vibrancy,” he said.

Shukor, however, said the government should prioritise aid to local airlines that support local jobs and the domestic economy with a uniform approach.

At the same time, he notes that some carriers, particularly national airlines, carry wider responsibilities beyond profit.These include maintaining connectivity, supporting jobs, and assisting in crises such as repatriation efforts.

Malaysia Airlines, under MAG, remains the national carrier and is owned by Khazanah Nasional Bhd, giving it a broader role beyond commercial operations.

Malaysia Airlines has previously been involved in government-coordinated evacuation efforts, including carrying Malaysians and their dependents home from Iran during the West Asia conflict.

“In Malaysia, help should be given to local airlines that support jobs and the economy,” Shukor said.