Southeast Asia's tourism sector, still recovering from the pandemic, now faces a new headwind: the fallout from the Iran conflict. Soaring fuel prices, flight disruptions and economic uncertainty are threatening to dampen demand just as the region enters its crucial summer travel season.
Cheap flights, backpacker hostels and pristine beaches have long made Southeast Asia one of the world's most resilient travel destinations. But the ripple effects of the conflict—airspace closures over the Persian Gulf, intermittent airport shutdowns and surging jet fuel costs—are reshaping the landscape for both carriers and tourists.
Visitor numbers tumble in key economies
Tourism is a vital economic lifeline for many developing nations in the region. In Thailand, it contributes nearly 13% of gross domestic product; in Vietnam, nearly 9%; and it underpins millions of jobs in Cambodia. Yet recent data paints a worrying picture. The Thai Ministry of Tourism and Sports reported that visitor numbers fell 7% year-on-year in April, with European arrivals down 16% and Middle Eastern arrivals plummeting 57%.
In neighbouring Cambodia, the tourism department recorded a 37.5% drop in international and domestic visitors to popular Siem Reap in the first four months of 2026 compared with the same period last year. Travellers also bring in much-needed foreign currency for import-dependent economies such as the Philippines and Nepal.
“This, happening within five years of each other, first the pandemic and now the war, is horrible for the tourism industry,” Jitsai Santaputra of The Lantau Group, an energy industry consulting firm, told the Associated Press.
Fuel costs squeeze airlines and travellers
Jet fuel shortages and surging costs have forced carriers including Vietnam Airlines, the Malaysia-based AirAsia group and Hong Kong's Cathay Pacific to cut flights or re-adjust schedules. European airlines, which ferry passengers to Asia often via the Middle East, face similar pressures. Airspace closures across the Persian Gulf early in the war and intermittent closures of certain airports have cut off key layover locations for Asia-bound flights, forcing commercial aeroplanes to take longer, costlier routes.
Airfares have jumped—and stayed high—with airlines like Air India and Cathay Pacific implementing sharp increases in fuel surcharges, often double the previous amounts. That is causing significant unease among travellers, Lavinia Lau, Cathay's chief customer and commercial officer, told the AP. She noted that travellers are booking closer to their departure dates than before, a sign of real uncertainty.
On the ground in Southeast Asia, rising fuel costs are also squeezing taxi and ride-hailing app drivers, with some recording significantly lower profits since the war began. The United Nations Development Programme has warned that higher airfares and weaker travel confidence can quickly spill over into household livelihoods and public revenues in economies where visitor arrivals are a major source of jobs, income and foreign exchange.
Travel is often the first expense people cut when the economy worsens, said Le Tuyet Lan, who runs bed-and-breakfast properties in Vietnam's Hanoi and Ho Chi Minh City. In times of crisis, luxury travellers tend to shift toward midrange options, midrange travellers move toward budget hotels, and the cheapest tier of the market becomes the most vulnerable.
The situation echoes broader trends across Europe, where the Iran conflict has driven German holidaymakers to seek alternatives closer to home, such as the North Sea and Baltic coasts. Meanwhile, budget airlines in Europe are slashing fares to maintain demand, a stark contrast to the price hikes hitting Southeast Asian routes.
