Middle East conflict constrains Australian aviation growth

“International growth moderated to three per cent year-on-year as global uncertainty persists. Australia-Middle East traffic is 30 per cent of pre-conflict levels,” said Airservices.

“Encouragingly, displaced long-haul demand, particularly for the European market, has largely been absorbed via alternative hubs driving solid growth in Asia-Pacific markets.

“Demand outlook, however, remains uncertain. In response to fuel supply risks and operating cost pressures, major airlines implemented forward capacity reductions, followed by targeted ticket sales to stimulate demand in key domestic and short-haul international leisure markets.

“This reflects dynamic adjustment in capacity, yield and cost management across the sector.”

Fuel prices were still a significant factor, affecting airfares and operating costs for major airlines, including Qantas Group and Virgin Australia.

“Continued disruption in the Strait of Hormuz carrying around 20 per cent of global oil trade and regional tensions have pushed jet fuel prices to more than double the level in February,” the report read.

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“The energy shock is weighing on consumer confidence and impacting supply chain stability and costs. This is impacting airline capacity and airfare decisions.”

Australia’s Middle East traffic remained down by 69 per cent year-on-year in April, following a dramatic collapse in March brought about by the start of the Iran war. Southeast Asia was up nine per cent and Mainland China was up 20 per cent in April 2025.

“Direct Australia-Europe traffic declined by 40 per cent and US market growth remained subdued amid geopolitical uncertainty,” the report read.

“In contrast, Asia Pacific markets continue to grow strongly, benefitting from demand for lower-cost, short-haul tourism and the role of the region as a stable alternative connection to Europe where the underlying demand continues to be resilient.

“These factors are reshaping airline network structures, with greater reliance on Asian hubs and capacity redeployment towards popular European destinations such as Paris and Rome.

Domestic demand remained “resilient” in April, with holiday leisure travel and mining traffic both helping to buoy the market.

“In response to fuel and operating cost pressures, major airlines implemented forward capacity reductions over the next three to six months, while sales launched in the second half of the month targeted demand stimulation in key leisure markets,” said Airservices.

“These dynamics are reshaping the domestic network, underpinned by disciplined capacity, yield and cost management.”

Australia is set to implement a major fuel resilience program in the federal budget.