Aviation stocks are among the biggest decliners in the Hong Kong market. At the time of writing, Air China Limited (ASX: 00753) shares are down 3.71% to HK$4.15. CHINA EAST AIR (ASX: 00670) shares have fallen 3.41% to HK$3.12. CHINA SOUTH AIR (ASX: 01055) shares are 2.86% lower at HK$3.40. CATHAY PAC AIR (ASX: 00293) shares have declined 1.93% to HK$11.70.

The sell-off follows a rapid escalation in tensions between the United States and Iran, which has pushed oil prices higher, with Brent crude briefly surpassing $95 per barrel. In response to what it called "unprovoked and sustained" attacks from Iran, U.S. Central Command forces began what it termed "defensive strikes" on multiple targets inside Iran at 5:15 PM Eastern Time on the 10th.

In a related development, Iran's armed forces announced that the Strait of Hormuz is closed to all types of vessels, including oil tankers and merchant ships, effective immediately. The statement warned that any vessel attempting to pass through the strait would be attacked.

Adding to the geopolitical uncertainty, former U.S. President Donald Trump was quoted as stating that if Iran does not sign an agreement, "we will blow them to smithereens tomorrow night" (Eastern Time, 11th).

Brokerage Analysis on Sector Conditions

In a separate note, Cathay Securities pointed out that the international aviation sector remained profitable in May despite high oil prices, and domestic jet fuel prices saw an expected decrease in June. The brokerage estimated that overall industry passenger traffic in May declined by approximately 10% year-on-year, with international traffic largely flat. Passenger load factors saw a slight year-on-year increase of nearly one percentage point.

High oil prices were the primary driver of a significant increase in ticket prices alongside a reduction in flight frequencies. Domestic ticket prices, including fuel surcharges, rose by over 8% year-on-year. Demand during the Labor Day holiday period was weaker than expected due to diversion from the spring holiday. Following the holiday, the industry's ability to pass on high fuel costs was limited during the seasonal low period. The domestic jet fuel price in May surged 111% compared to the same period last year, putting significant operational pressure on the industry.