Key Points
- Qantas said it is taking measures to mitigate the impact of the conflict in the Middle East, including fare increases.
- Virgin Australia said it is adjusting airfares and capacity "to offset the impact from increased fuel and other operating costs".
Surging jet fuel prices may raise costs for Qantas by up to $800 million in the second half of this year, the airline said on Tuesday.
The war in the Middle East has led jet fuel prices to more than double, and they remain "extremely volatile", the carrier said in a market update.
The cost of jet fuel in the second half of 2026 is now expected to be $3.1 billion to $3.3 billion, it said — up from $2.5 billion in Qantas' previous forecast.
Qantas said it was working with the Australian government and jet fuel suppliers, who were confident of fuel supply for the rest of April and well into May.
"We are closely monitoring the situation given the ongoing uncertainty in global fuel supply chains," the airline group said.
"The Group has taken action to mitigate the impact of the conflict in the Middle East, including international network changes, capacity adjustments and fare increases."
Qantas said it was benefiting, however, from a boost in demand for travel to Europe as passengers avoided Middle East routes.
"In response, the Group has redeployed capacity from the US and its domestic network to increase flights to Paris and Rome."
Qantas said unit revenue on international routes was now expected to grow by 4-6 per cent year-on-year in the second half of 2026 — double its previous forecast.
For domestic flights, revenue was set to rise by about 5 per cent, up from its previous expectation of a 3 per cent increase.
Qantas said it may have to take further action on fuel prices.
"The Group continues to closely monitor the dynamic environment and retains optionality to take further actions to mitigate fuel cost increases over time."
Virgin follows Qantas, but considers impact to be lower
Australia's second-largest airline has followed Qantas' lead, cutting travel capacity and raising airfares in the wake of the conflict in the Middle East.
But Virgin Australia is more confident about the effectiveness of its fuel hedging, even though it's currently facing an increased cost of between $30-40 million in the second half of its financial year.
Virgin Australia also said fare increases and capacity cuts would help protect earnings and left its profit outlook unchanged.
The carrier, which will report its fiscal 2026 results in August, still expects second-half underlying earnings to be higher than the previous corresponding half, when it reported annual earnings of $664.4 million.
"In FY26, the group continues to experience strong customer demand, with higher fuel costs largely mitigated through effective fuel hedging and recent airfare and capacity adjustments," Virgin told the stock exchange on Wednesday.
For the rest of its fiscal year, Virgin is hedged 92 per cent for Brent crude oil and 71 per cent for refining margins.
This means its exposure is limited to the unhedged portion of crude and refining margins.
Refining costs have soared from around US$20 a barrel in February, when the conflict began, to a peak of around US$120.
Like all airlines, fuel is one of Virgin's highest costs.
In the first half, fuel accounted for 21 per cent of total operating expenses with the equivalent of 3.4 million barrels of oil consumed at a cost of about $555 million.
"To offset the impact from increased fuel and other operating costs, such as airport charges, Virgin Australia has adjusted airfares and capacity" in the current half, it said.
Domestic capacity will fall by 1 per cent in the June quarter, but will still be one 1 cent higher across the half.
At the same time, revenue per available seat kilometre — a key metric that reflects how much money is generated for each seat — will rise by 5 per cent across the second half, and six per cent in the June quarter.
Looking ahead to the new financial year, Virgin said ongoing volatility meant its capacity setting would remain under review.
"The group continues to monitor the external environment and retains flexibility to take further actions if required," it added.
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