This article first appeared in The Edge Malaysia Weekly on July 6, 2026 - July 12, 2026

AIR travellers are unlikely to see ticket prices fall anytime soon, despite oil prices retreating towards US$70 a barrel from their April highs after the US and Iran signed a preliminary agreement on June 17 towards ending the war.

Airlines are in no rush to roll back the fare increases introduced since the Iran conflict began on Feb 28 as they continue to grapple with high costs, operational disruptions and the fragile interim peace deal between the two nations, according to aviation experts.

Malaysia-based airlines, including AirAsia X Bhd (KL:AAX) and Malaysia Airlines Bhd, have raised fares by about 30% and 40% since the conflict broke out.

Former Malaysia Aviation Group Bhd (MAG) group managing director Datuk Captain Izham Ismail says ticket prices are unlikely to ease until late this year or early 2027.

“I expect fares to remain sticky and elevated for the next quarter or two, through the end of 2026,” he tells The Edge. “The economics of fuel is not just about Brent crude. What matters is the crack spread (the difference between crude oil and jet fuel prices), and that remains exceptionally high. While Brent crude has moderated [following the truce between the US and Iran], the global average price of Jet A-1 fuel remains elevated.”

According to S&P Global Platts spot assessments, jet fuel averaged US$116.63 per barrel on June 26, after surging above US$200 during the height of geopolitical tensions. Even so, prices remain 29.5% higher than a year earlier.

Izham says inventories, particularly in the Gulf and Asia, remain stretched. “Crack spreads typically sit around US$20 per barrel. They are now closer to US$50.”

Although tanker traffic through the Strait of Hormuz has resumed, he notes that sustained restocking will take several months before airlines experience meaningful relief in fuel costs.

With the International Air Transport Asso­ciation (IATA) projecting global load factors to average 84% this year, passenger demand has remained resilient despite higher ticket prices. “That gives airlines pricing power. If the planes are already full at today’s fares, why would an airline voluntarily reduce prices?” asks Izham.

Wong Hong, director general at the Association of Asia Pacific Airlines (AAPA) since April 1, agrees that air fare reductions are unlikely in the near term.

“Fuel prices are but one aspect of what goes into determining air fare levels, and carriers adjust air fares in response to demand and supply in various markets. Passengers in different markets are likely to see a range of air fare levels over time,” he says in an email response to questions from The Edge.

He notes that air fares between Asia and Europe have risen because Middle Eastern airlines have reduced capacity, pushing more passengers onto Asian and European carriers. Elsewhere, fares are broadly competitive.

Preliminary AAPA figures show international passenger traffic among Asia-Pacific carriers declined 1.1% year on year in May, while available seat capacity was broadly unchanged. Nevertheless, average international load factors rose 1.2 percentage points to 82%.

Wong says airlines across the region continue to contend with higher fuel costs, ope­rational disruptions and lingering supply chain challenges.

“Asian carriers have had to be nimble in navigating such challenges by adopting measures including network, fleet and airfare adjustments over time. Carriers with larger networks and fleets have generally been able to respond more effectively,” he says.

He adds that airlines remain focused on cost management but have so far avoided large-scale job cuts.

Fuel is only one part of the pricing equation.

According to Izham, fares are also driven by capacity and the aviation industry continues to face structural constraints caused by supply chain disruptions.

“Aircraft deliveries remain delayed; maintenance, repair and overhaul (MRO) providers are operating near capacity, while aircraft leasing costs remain elevated,” he says.

“The industry simply does not have enough capacity coming into the market. That gives airlines the leverage to maintain a higher pricing discipline instead of dumping seats to chase market share.”

Global airlines have also trimmed their capaci­ty in response to recent soaring fuel costs and geopolitical tensions. IATA data shows global airline capacity fell 2.3% y-o-y in May, although passenger demand remained resilient, with average load factors reaching 83.5%.

“If I were an airline CEO today, I would be focused on yields, not market share. The industry absorbed significant fuel costs in early 2026. Carriers need to recover those costs before they think about reducing fares,” Izham says, citing IATA estimates that fuel price increases linked to the Iran conflict would add US$100 billion to global airline fuel bills this year.

AAX group CEO Bo Lingam recently said the budget carrier had reduced fares by roughly 5% since June 15 and would continue reviewing ticket prices weekly in line with fuel movements.

Even so, Izham says fuel costs are only one element of airline pricing. “Demand remains resilient, but airlines also need to repair their balance sheets.”

He notes that airlines have been exposed to costly rerouting to avoid conflict zones, increasing fuel burn and operating costs.

“Fuel typically accounts for between 25% and 31% of airline operating costs, although, during the sharp price spike in early 2026, it exceeded 40% for some carriers,” he says.

“The earliest meaningful fare relief is likely to come towards the end of the fourth quarter or early 2027.”

Several conditions would need to be met before fares begin to ease. Global jet fuel inventories must recover, allowing crack spreads to narrow, while airlines would also seek to recoup losses incurred in the first half of the year.

“During the Iran war, oil-producing countries closed their tap. To reopen the tap takes months. As global jet fuel inventories continue to be rebuilt, it will continue to compress the jet fuel crack spread. So, the crack will stay elevated for a while, and that is where it matters most to airlines,” Izham explains.

“Until then, carriers are likely to maintain base fares while relying more heavily on premium products and ancillary revenue.”

Meanwhile, the European Union Aviation Safety Agency (EASA) continues to advise airlines to avoid the airspace over Iran, Iraq and Lebanon because of continuing uncertainty surrounding the ceasefire. The advisory has been extended until July 8.

Whether airlines can remain profitable this year, with Brent crude hovering around US$70 a barrel, depends largely on their business models, says Izham.

“I expect a mixed performance in terms of profitability across airlines. But, overall, the global industry should remain profitable, supported largely by North America and China. In Asia, performance will vary considerably between carriers,” he adds.

Among regional carriers, Singapore Airlines Ltd (SIA) is expected to remain profitable, supported by disciplined capacity deployment, strong yield management and an effective fuel hedging strategy.

“I believe SIA hedges both crude and crack spreads. That puts them in a stronger position,” says Izham.

He adds that SIA is well placed to withstand the return of capacity from Middle Eastern carriers such as Emirates and Qatar Airways. Even before the conflict, the airline’s network strategy had proved resilient and it seized the opportunity presented by the temporary closure of Middle Eastern airspace to expand capacity on Asia-Europe routes.

“I don’t think Middle Eastern airlines will return to full capacity this year because market confidence remains fragile.”

Bloomberg data shows analysts expect SIA’s net profit for the financial year ending March 31, 2027 (FY2027), to decline to S$859.39 million (RM2.7 billion) from S$1.18 billion in FY2026. Among analysts covering the stock, three have a “buy” recommendation, 10 rate it a “hold” and three a “sell”, with a consensus price target of S$6.77, about 12% below its closing price of S$7.70 on July 2.

Fuel, however, is only one factor determining profitability. “Some airlines have higher average fares, lower operating costs or stronger cost controls elsewhere,” Izham says.

MAG, parent company of Malaysia Airlines, posted a net profit of RM137 million for the financial year ended Dec 31, 2025 (FY2025), more than doubling from RM54 million in FY2024.

Although Malaysia Airlines continues to record a healthy load factor of about 84%, Izham says the key challenge is converting strong seat occupancy into sustainable yields. He adds that the national airline must significantly improve cost efficiency and implement cost-management measures to offset yield erosion, or profitability will remain under pressure. 

Meanwhile, air cargo remains a bright spot for the industry. IATA data shows global cargo demand rose 6% y-o-y in May, with stronger yields and higher load factors helping offset higher fuel costs.

Low-cost carriers are among those most exposed to the impact of higher fuel prices because their lean operating models and quick aircraft turnaround times generally leave them with little or no fuel hedging.

According to Bloomberg, analysts still expect FY2026 to remain profitable for AAX, even though it slipped into a net loss of RM154.88 million in 1QFY2026 and 2QFY2026 will remain weak because of high jet fuel prices. They expect full-year net profit to fall to RM5 million from RM191.75 million in FY2025.

In a June 23 report, Maybank Investment Bank Research forecasts a FY2026 core net loss of RM188 million for AAX before a rebound to a core net profit of RM926 million in FY2027 and RM949 million in FY2028. The forecast assumes average fares will rise 15% in FY2026 before normalising in FY2027 and FY2028, while jet fuel prices are expected to average US$135 per barrel in FY2026 before easing to US$85 in FY2027 and FY2028.

Meanwhile, Hong Leong Investment Bank Research believes AAX’s balance sheet remains strong enough to absorb the expected losses in FY2026 without triggering Practice Note 17 (PN17) status, supported by shareholders’ equity of RM872.5 million as at March 2026.

“AAX is likely to benefit from margin expansion in June, as ticket sales were largely priced based on US$160 per barrel jet fuel prices, while actual jet fuel prices have since declined to below US$120 per barrel,” the research firm said in a June 17 report.

“Looking beyond 2QFY2026, we expect AAX’s operating environment to normalise as geopolitical uncertainties ease, with strong growth towards seasonally peak demand in 4QFY2026.”

Despite cautious optimism that fuel prices could stabilise in the second half of 2026, AAPA’s Wong warns that renewed instability in the Gulf or broader inflationary pressures could quickly change the outlook.

“While jet fuel prices have eased from recent highs, the average price of US$137 per barrel in the first two weeks of June continues to place pressure on airline operating costs,” he says.

“However, airlines are alert to changes that can emerge, such as return to instability at the Gulf, and general inflationary pressures can affect demand.”

Izham says supply chain disruptions continue to constrain airlines. “Late aircraft deliveries are forcing many operators to keep older, less fuel-efficient aircraft in service while maintenance, leasing and MRO costs remain elevated.”

New-generation aircraft consume between 15% and 20% less fuel than older models, but delayed deliveries mean many airlines have little choice but to continue operating ageing fleets.

“Airlines remain nervous about restoring capacity because the US-Iran agreement is still fragile. But as long as capacity remains constrained, fares will stay elevated,” Izham says.

He contends that airlines also have little commercial incentive to add seats while yields remain strong.

“If I’m already earning higher yields, why should I rush to put more capacity into the market?”

In his view, fares will only ease once jet fuel crack spreads narrow, supply chain bottlenecks improve, aircraft deliveries normalise and airlines are able to operate more efficiently. 

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