Krungsri Securities (KSS) has highlighted the growing pressures on the aviation sector as a result of the intensifying conflict in the Middle East. The ongoing U.S.-Israel-Iran conflict, which escalated with significant airstrikes in late February 2026, has led to temporary closures of key airspace in the region.
As the Middle East serves as a vital transit hub connecting Europe and Asia, these closures have caused widespread disruptions to global flight traffic. Compounding the issue, Iran has closed the Strait of Hormuz—a crucial passageway for more than 20% of the world’s oil supply—leading to a surge in crude oil and jet fuel prices.
Airspace restrictions have primarily disrupted certain long-haul flight routes from the Americas and Europe to Thailand, affecting tourist arrivals from these regions, which together account for approximately 32% of Thailand’s total visitors. This resulted in total arrivals contracting by 1% to 4% year-on-year in early to mid-March 2026, reversing the 5% growth recorded in February.
However, overall passenger volumes and flight movements at Thailand’s airports still recorded healthy growth, rising by 7% and 6% year-on-year, respectively. Strong domestic travel has largely offset declines in international arrivals, thus limiting the broader impact on the sector.
Airports with higher dependence on European passengers—such as Samui Airport, where Europeans make up about 40-50% of traffic—are feeling more acute effects, with passenger volume swinging from 7% growth in February to a 3% decline year-on-year in March 2026. The steepest immediate impact comes from soaring jet fuel costs.
In March 2026, global jet fuel prices nearly doubled compared to a year earlier, increasing by over 99% year-on-year and 92% month-on-month to $170.3 per barrel, following Iran’s Strait of Hormuz closure. By mid-March, prices reached $203.09 per barrel. As fuel typically accounts for 20-40% of an airline’s operating costs, KSS sees this situation placing considerable strain on airline earnings projections for 2026.
Looking at the broader implications for listed aviation stocks, Krungsri evaluates impacts across revenue and cost structures. Passenger volumes and flight movements continue to show year-on-year growth—except for Bangkok Airways (BA), which relies heavily on European travelers. If the conflict endures for one to three months, the brokerage anticipates a potential decline of 2–4% in passenger numbers and a 7–12% drop in 2026 forecast earnings.
Meanwhile, the analyst does not expect this scenario to materially impact the sector’s target prices. The key risk remains fuel cost escalation, which could see prices averaging between $109 and $128 per barrel for the year—significantly higher than previous forecasts.
Among carriers, Asia Aviation (AAV) stands out as the most exposed: earnings could swing to a loss, driving its target price down by 16-28% to THB 1.01–1.19 per share. Thai Airways (THAI) could see a 27–51% earnings decline and a 4–8% reduction in target price (to THB 7.85–8.16 per share). While BA’s earnings could fall 9–18%, its target price is expected to remain stable at THB 25 per share. Across the sector, heightened fuel costs are seen as the dominant headwind.
KSS maintains that the Middle East conflict represents a tangible near-term risk for aviation stocks, especially due to the upward trend in jet fuel costs. Airports of Thailand (AOT) and Samart Aviation Solutions (SAV), operating airport and air traffic services, are viewed as relatively more resilient since overall passenger and flight movement growth has not yet been significantly affected.
Recent share price corrections of 9% to 26% across the sector suggest that these risks have been partly priced in by the market. From a long-term viewpoint, the brokerage remains positive on the sector, citing recovery in Chinese tourist arrivals, sustained growth from India, and the growing significance of aviation hubs in Asia as supporting factors.
Based on risk-adjusted outlooks, AOT is recommended as the sector’s top pick due to its comparatively lower immediate exposure to conflict-related risks and the medium-to-long-term catalyst of a PSC (Passenger Service Charge) tariff hike planned for June 2026, which should boost its 2027 earnings by 46% year-on-year.
As a result, Krungsri recommends ‘Buy’ ratings on AOT, BA, and SAV, assigning target prices of THB 65.00, THB 25.00, and THB 18.10 per share, respectively, while adopting a ‘Neutral’ stance on AAV with a target price of THB 1.41 per share.
