Ten days ago, strikes on Iran triggered retaliatory attacks and an immediate aviation crisis across the Gulf. Within a span of hours, airspace over multiple countries closed, major hubs went dark, and the world’s busiest transit corridor (which handles up to 1 million passengers a day) effectively stopped. As of 11 March, disruption continues: Dubai and Abu Dhabi are operating in limited, tightly controlled modes, while Doha remains largely suspended. 

The Middle East sits at the intersection of the world’s most important long-haul aviation corridors. On a typical day, more than 10,000 flights cross its airspace, while more than 3,000 landings and departures in the region handle up to 1 million passengers in Gulf hubs, enabling the rise of major global nodes such as Dubai, Doha, Abu Dhabi or Jeddah.

The escalation of geopolitical tensions and the subsequent airspace closures imposed in early March have triggered immediate effects that have rapidly propagated across the global aviation system. Restrictions affecting multiple countries require airlines to reroute thousands of flights and disrupt synchronized hub operations. 

While several other publications have already touched on the impact on operations, the focus of our analysis today is on what is the total cost, who bears it, and what this situation reveals about hidden vulnerabilities in the global aviation system.

Impact on airlines, passengers (and airports)

The most significant impact has been borne by local airlines operating hub-and-spoke networks such as the ME3 (Emirates, Qatar, and Etihad). During the first days of disruption, they experienced hundreds of daily cancellations, facing cascading operational impacts (such as customer service and handling) as passengers missed connections across global networks. The combination of operational and passenger-related costs means that the total net loss of a single cancelled long-haul flight can exceed $80,000. Considering cancellations of the ME3, these losses can add up to $100m per day, or almost $700m weekly. This estimation takes into consideration not only the passenger and cargo revenue losses due to refunds, but also the avoided costs (such as fuel or airport and air navigation fees), avoided losses (rebooking of some passengers that have not requested a ticket refund), and new incurred costs (due to network and crew disruptions or extra parking time).

An additional consequence of the airspace closure was the rerouting of overflights around northern or southern alternative corridors. Longer routes increase fuel consumption, crew duty times, and air navigation charges. These operational adjustments can generate additional costs of approximately $15,000-$20,000 per rerouted long-haul flight, considering that the operating costs per flight hour of a widebody sit around $9,000.

Beyond cancellations, Gulf hub carriers have also been forced to manage large numbers of stranded passengers, providing them with accommodation and allowances until a repatriation flight can be operated. The ME3 started scheduling return flights within specific safe corridors one week after the outbreak of the conflict, adding a cost of $1,400 per passenger. Assuming one-fifth of their daily passengers were stuck at the time of the closure, the repatriation bill alone reaches $100m. Those flights (both from and back to the Gulf countries) are also affected by rerouting. Currently, flights between the UAE and Europe divert firstly southward through Omani airspace, before heading back to the north, adding close to two hours of flight time.

For airports in the region, operational disruptions have translated into sudden capacity imbalances, given that aircraft may remain parked longer than planned. At the same time, departure and arrival waves must be reorganized around established safety corridors. All this on top of any damage from direct attacks on infrastructure.

Impact on insurers: “hidden layer”

Given the exceptional nature of this event, governments have announced extraordinary support measures such as covering part of the cost of managing stranded passengers. However, the biggest portion of additional costs generated by the operational and passenger disruption will rely on a less visible but equally important dimension: aviation insurance exposure. Airlines operate within a complex risk transfer ecosystem that includes multiple insurers and reinsurers covering liabilities, hull damage, war risk, and other operational exposures. Large-scale airspace disruptions can therefore create cascading financial effects across this aviation insurance landscape, whose market currently amounts to more than $5bn.

A recent example of geopolitical exposure in aviation insurance occurred after the 2022 invasion of Ukraine, when Western leasing companies were unable to recover hundreds of aircraft from Russia. The resulting insurance claims, estimated at more than $10bn, became one of the largest disputes in aviation insurance history.

For insurers, the challenge lies in understanding how geopolitical events propagate through aviation networks and translate into financial risk, a challenge further compounded by the complexity of quantifying real-time portfolio accumulation across aviation risks that are correlated. Geopolitical instability and war risk repricing was already underway before this conflict, but aggregate exposure and side-impact effects are hard to measure as they occur.

Insurers must therefore address:

• Static underwriting makes it very difficult to capture emerging risks and translate them into potential loss exposure. In this event, risk profiles shifted in the weeks before the crisis, a window that static underwriting models cannot act on.
• Traditional asset and portfolio monitoring frameworks may fail to capture deteriorating internal or external risk conditions, potentially requiring a reassessment of policy terms.

Real-time portfolio risk exposure mapping is an increasingly critical capability that allows insurers to know, at any given moment, how much risk is concentrated in a specific operational domain (e.g., airspace corridor), across operators, policies, and reinsurance structures simultaneously. The situation in the Gulf has proven that geographic concentration can create cascaded financial impacts faster than any static model can track.

Advanced data analytics and modelling approaches can help insurers better quantify disruption scenarios, assess portfolio exposure, and anticipate how systemic aviation events may affect multiple operators simultaneously. Accurately modelling these dynamic scenarios requires combining operational aviation data, traffic flows, network dependencies, and exposure metrics, providing an aviation perspective to actuarial practice.

Final takeaway

Understanding how operational aviation events propagate across airlines, passengers, and networks requires combining operational expertise with advanced analytics. As aviation systems become more interconnected, the ability to model these systemic disruptions will become increasingly important for airlines, infrastructure operators, and the insurance ecosystem. 

Note: Data and estimations based on ALG internal traffic and economic analyses as well as external sources such as national Civil Aviation Authorities, Air Navigation Service Providers, airlines, ICAO, OAG, CNN, Eurocontrol, FlightRadar24.
 

About the authors

Antonio Cabeza

Aeronautical engineer with a MSc in Big Data and Advanced Analytics. Specialises in strategic projects in airport and air traffic operations with wide expertise in digitalisation and regulatory-related projects. Senior Engagement Manager at ALG.

Darío Pérez Campuzano

Aerospace engineer with a PhD in Business Administration & Economics. Features more than 10 years of experience in strategic consulting within sectors such as aerospace, transport, energy, manufacturing, and Artificial Intelligence; mainly across Europe and the Middle East. Team Leader at ALG.

Carlos Cuesta Simón

Aerospace engineer with a BSc. in Business Administration. Focuses on the intersection between digital solutions and airport operations, with more than 7 years of experience in analytics and operational performance and transformation projects across Europe and the Middle East. Team Leader at ALG.