The Iran war is creating a cascading crisis across Asia's tourism-dependent economies, with soaring jet fuel costs and geopolitical uncertainties threatening the region's peak tourist summer season. According to Business Standard, tourism contributes nearly 13% of gross domestic product in Thailand and nearly 9% in Vietnam, making these countries particularly vulnerable to the war's economic impact. Tourism accounts for nearly 11% of economic activity in the Association of Southeast Asian Nations in 2019, as reported by the World Travel and Tourism Council. An analysis by Moody's Analytics estimates the war's effects would likely reduce economic growth across the Asia-Pacific region by 0.1 to 0.4 percentage points in 2026. The conflict is creating a perfect storm for the tourism industry, which is still recovering from the COVID-19 pandemic and now faces additional pressure from war-driven spikes in oil prices. As per NDTV, the region's peak tourist summer season is at risk as elevated jet fuel costs coupled with ceasefire uncertainties prompt flight cancellations and higher ticket prices.
Jet fuel shortages and surging costs have led major carriers to implement dramatic fare increases to offset rising operational costs. Cathay Pacific has increased its fuel surcharge for medium-haul flights to ₹6,330 ($80) from ₹2,640 ($34) before the war, while long-haul flight surcharges jumped to ₹13,620 ($174) from ₹5,690 ($73). As per Business Standard, airlines like Air India and Cathay Pacific are implementing sharp increases in fuel surcharges to help mitigate rising operational costs. Cathay's chief customer and commercial officer Lavinia Lau stated that jet fuel prices remain at highly elevated levels and have increased cost pressures significantly. Travelers are booking closer to their departure dates, indicating growing unease about the situation, according to the airline. According to NDTV, airfares have jumped, with airlines like Air India and Cathay Pacific implementing sharp increases in fuel surcharges to offset the mounting cost pressures.
Jet fuel shortages and surging costs have led major carriers to cut flights or re-adjust schedules across the region. According to Business Standard, Vietnam Airlines, the Malaysia-based AirAsia group, Hong Kong's Cathay Pacific and other carriers have implemented flight cuts or schedule adjustments. Airspace closures across the Persian Gulf early in the war and intermittent closures of certain Gulf airports cut off key layover locations for Asia-bound flights or forced commercial airplanes to take longer, costlier routes. The airspace management issues are creating substantial operational complexity for carriers serving the region. Air India has temporarily rationalised operations on certain domestic routes during the same period, with a reduction in frequencies on select routes as part of broader operational adjustments. As per NDTV, European carriers face a squeeze from similar issues, with the operational challenges affecting airlines globally.
The crisis is creating severe economic hardship for tourism-dependent communities across Southeast Asia. As reported by Business Standard, Cambodian tuk-tuk driver Siv Pech, who used to earn up to $20 a day toting tourists around Siem Reap, now earns about $5 a day - with his gas bill consuming half of that amount. In Siem Reap, the number of recorded international and domestic visitors dropped by 37.5% in the first four months of 2026 compared to the same period last year, according to the province's tourism department. Thailand's visitor numbers fell 7% year-on-year in April, with European arrivals falling almost 16% and Middle Eastern arrivals sinking 57%, according to the Ministry of Tourism and Sports. Sokha Sambo, owner of the popular Sambo Khmer & Thai Restaurant in Siem Reap, said the rising price of liquefied petroleum gas used for cooking has strained her budget, making it difficult to cover employee salaries and maintain profitability. As per NDTV, rising fuel costs in tourism-dependent Southeast Asia are squeezing taxi and ride-hailing app drivers, with Pech stating that "Some days, I don't earn even a cent".
Indian airlines have formally requested state-run oil refiners to defer jet fuel price hikes for domestic flights until the West Asia conflict ends, according to people familiar with the matter. The proposal, floated by airlines including Air India Ltd., IndiGo and SpiceJet Ltd., is currently being considered by the refiners as the industry grapples with mounting cost pressures. India's oil and gas ministry is also involved in discussions, with a decision expected before June 1. This comes after the government previously limited the most recent jet fuel price hike to 25% in April and required oil majors to keep prices constant in May. The state-owned refiners, including Indian Oil Corp., Hindustan Petroleum Corp. and Bharat Petroleum Corp., are currently discussing whether to raise jet fuel prices in June by up to 25% for domestic flights. As per NDTV, the war will determine which tourism businesses can survive long enough to benefit from the eventual return of travelers, with industry experts noting that "this, happening within five years of each other, first the pandemic and now the war, is horrible for the tourism industry".
The extended flight cuts are coinciding with Indian airlines' introduction of fuel surcharges on both domestic and international flights to help mitigate rising operational costs. Industry experts believe the reduction in domestic capacity is likely to increase airfares across several high-demand routes during the June–August travel period, especially as airlines continue to face elevated aviation turbine fuel prices. The capacity cuts are also expected to reduce flight availability on select domestic sectors during the peak holiday season. With flights withdrawn and airfares shooting northwards, it remains to be seen how passengers will react to the extended cutback in flights. On May 13, Air India announced the suspension of its Delhi-Chicago O'Hare International Airport service and reduction in frequencies on select routes, while also making adjustments to European and North American routes. According to IATA, forward schedule data is showing a reduced offering in the coming months, indicating that airlines are balancing high fuel costs and weaker demand. As per NDTV, travel is often the first expense people cut when the economy worsens, with the crisis affecting luxury travelers who shift toward midrange options and budget hotels becoming the most vulnerable segment.
