As the Northern Hemisphere’s summer travel season approaches, Southeast Asia’s tourism-reliant economies are grappling with cascading economic shocks stemming from the ongoing conflict with Iran, compounding the slow, incomplete recovery from the COVID-19 pandemic that has stretched across the last five years. The combination of skyrocketing energy prices, persistent ceasefire uncertainties and disrupted global supply chains has put the region’s most critical revenue-generating season in serious jeopardy.
The conflict has sent global jet fuel prices surging to multi-year highs, while persistent instability in the Persian Gulf has forced major regional and international carriers to slash flight capacity, revise flight routes and raise ticket prices sharply. Early in the conflict, widespread airspace closures across the Persian Gulf and intermittent shutdowns of key Gulf airports eliminated vital layover points for long-haul flights heading to Asia, forcing carriers to divert to longer, far more fuel-intensive routes that drive up operational costs exponentially.
Major airlines across the Asia-Pacific have already implemented deep cuts to their flight schedules. Vietnam Airlines, Malaysian budget carrier AirAsia Group, Hong Kong’s flagship carrier Cathay Pacific and multiple European airlines have all been squeezed by rising fuel costs and reduced demand, resulting in widespread cancellations and schedule adjustments. To offset inflated fuel expenses, carriers have implemented dramatic hikes to fuel surcharges: Cathay Pacific raised its medium-haul fuel surcharge from HK$264 ($34) before the conflict to HK$33 ($80), while long-haul surcharges jumped from HK$569 ($73) to HK$1,362 ($174). Lavinia Lau, Cathay Pacific’s chief customer and commercial officer, confirmed that jet fuel prices remain at extremely elevated levels that have intensified cost pressures, adding that more travelers are booking trips far closer to departure dates – a clear indicator of growing consumer unease about travel costs and stability.
For many international travelers, the steep rise in airfares has derailed long-planned summer trips to the region. Sandra Awodele, a Washington D.C.-based freelance travel writer who had been planning to cross a Southeast Asian trip off her bucket list this summer, scrapped her plans for a two-week Thailand vacation after seeing current airfare prices. “I looked at flight options and that’s where it ended,” she said.
The pain of the current crisis is not limited to airlines and travelers – it ripples all the way through local tourism-focused economies, hitting frontline workers and small business owners hardest. For 58-year-old Siv Pech, a tuk-tuk driver in Siem Reap, Cambodia – home to the iconic centuries-old Angkor Wat temple complex that draws millions of visitors annually – daily earnings that once reached up to $20 have plummeted to roughly $5 a day, with half of that sum eaten up by rising gasoline costs. “Some days, I don’t earn even a cent,” Pech said. “With gasoline prices rising and tourism declining, how can we make money?”
Sokha Sambo, owner of the popular Sambo Khmer & Thai Restaurant in Siem Reap, faces similar strains: the price of liquefied petroleum gas for cooking has surged, squeezing margins so tightly that she struggles to cover payroll for her 14 employees. “I’m worried about gas and goods inflation. It makes the business less profitable and difficult to cover employees’ salaries,” Sambo said. Official data from Siem Reap’s tourism department shows that recorded international and domestic visitor numbers dropped 37.5% year-on-year in the first four months of 2026, a decline that has impacted every sector of the local economy. “This has greatly affected all of us,” Sambo added.
In Thailand, one of Southeast Asia’s most visited destinations, official data from the Ministry of Tourism and Sports confirms that overall visitor numbers fell 7% year-on-year in April, with arrivals from Europe dropping nearly 16% and arrivals from the Middle East plummeting 57%. Le Tuyet Lan, who operates bed-and-breakfast properties in Vietnam’s Hanoi and Ho Chi Minh City, noted that travel is always the first discretionary expense households cut when economic conditions worsen. In times of crisis, she explained, luxury travelers shift to mid-tier accommodations, mid-range travelers opt for budget options, leaving the lowest tier of the market – made up largely of small local operators – the most exposed. “This will disrupt the whole industry,” she said.
Tourism has long served as the economic lifeline for most developing Southeast Asian nations, accounting for nearly 11% of total gross domestic product across the Association of Southeast Asian Nations (ASEAN) in pre-pandemic 2019, according to data from the World Travel and Tourism Council. Today, it contributes almost 13% of GDP in Thailand, 9% in Vietnam, and supports millions of jobs across Cambodia, while bringing critical foreign currency to import-dependent economies across the region. That revenue is more vital than ever, as the war-driven spike in global oil prices has pushed up fuel import costs for nations that depend on the Strait of Hormuz, off Iran’s coast, for the vast majority of their oil and gas imports.
Economic analysts warn that the cumulative shock of two major crises – the COVID-19 pandemic just five years ago, followed by the current conflict-driven energy crunch – could push hundreds of vulnerable tourism businesses to collapse before demand eventually rebounds. “This, happening within five years of each other, first the pandemic and now the war, is horrible for the tourism industry,” said Jitsai Santaputra, a Bangkok-based analyst with energy consulting firm The Lantau Group. “The war will determine which tourism businesses can survive long enough to benefit from the eventual return of travelers.”
Forecasts from major financial institutions paint a grim picture for regional growth: Moody’s Analytics estimates that conflict-related spillovers will reduce overall economic growth across the Asia-Pacific by 0.1 to 0.4 percentage points in 2026. “The conflict will weigh on growth mainly through higher production costs and consumer prices, along with weaker external demand from trade and tourism,” said Albert Park, chief economist at the Asian Development Bank. A recent report from the United Nations Development Program echoed that warning, noting that higher airfares and falling travel confidence can rapidly spill over to erode household livelihoods and cut public revenues in economies where tourism is the primary source of jobs, income and foreign exchange.