Gulf crisis puts downward pressure on Asia Pacific capacity and earnings

Asia Pacific airlines are pulling every lever within reach in their efforts to counter the unpredictable swings in fuel prices that are continuing to complicate their planning.

Short-term measures include trimming flights, redeploying capacity and hiking ticket prices and fuel surcharges. But the speed at which fuel prices are changing mean that these moves are generally not sufficient to offset the cost increases.

Whether more drastic and longer-term structural measures will be needed depends on how long it takes to resolve the Middle East conflict, and the prospects for this are shifting constantly.

So far, the cost increase has been the major problem Asia Pacific airlines are addressing. But they are well aware that fuel supply constraints remain a threat that draws closer the longer the crisis lasts.

The Asia Pacific region's capacity is being pulled down by flight suspensions on routes to the Middle East, the temporary dip in service from Gulf carriers, and broader cost-related capacity cuts that are being implemented.

These first two effects may ease if the Iran conflict is resolved soon. But the third - network cuts - will still increase in coming months before it eases, irrespective of whether a peace deal is achieved.

The Gulf carriers will no doubt restore their Asia Pacific capacity when airspace fully reopens.

A larger question will be how long it takes for customer confidence and Gulf transit demand to recover - although previous industry crises have proven that demand is usually remarkably resilient.