In this paper, a vertically integrated shallow water model is developed. The model includes air bubbles to investigate air bubble effect (sensitivity) on water level due to a tropical storm along the coastal region of Bangladesh. The shallow water equations are solved using doubly nested conditionally stable finite difference schemes for incorporating coastal bending and offshore islands with considerable accuracy in the numerical schemes. A fine mesh scheme has been nested into a coarse mesh scheme in the region of our study. In the fine mesh scheme, all the major islands are incorporated through proper stair step representation. For the existence of so many small and big islands between Barisal and Chittagong and also for high bending of the coastline along the Meghna estuary, a very fine mesh scheme is again nested into the fine mesh scheme. The developed model was then applied to simulate water levels due to surges associated with the cyclones April 1991 and AILA along the coast of Bangladesh. The increases in water levels due to air bubbles were found to be around 2–12% with respect to the reference void fraction 10–70%.