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Fliers hoping the recent dip in petrol prices would lead to discounted tickets to Europe are likely to be disappointed after jet fuel costs spiked harder than other fuels at the start of the war and have stayed more elevated.
While bowser prices for motorists have dipped on hopes – however fleeting – of Middle East stability, Qantas’s chief financial officer has warned that it could take months after the end of conflict in the region before prices returned to pre-war levels.
This leaves Qantas facing an $600-800 million fuel shock, forcing it to keep ticket prices higher than they otherwise would be amid blockades to the Strait of Hormuz and damage to oil production in the region. Even while Qantas and rival Virgin announced domestic ticket sales this week, the airlines are juggling huge fuel costs.
The root of the problem lies in how jet fuel is priced. Beyond raw oil, jet fuel costs are driven by refining margins, the price of making the propellant for planes.
So while petrol prices have dipped recently – as low as $1.56 per litre in late June – on hopes of Middle East stability, jet fuel remains 60 per cent higher than its pre-conflict baseline.
“Even if the war ended tomorrow, there would probably be three to four, maybe even longer months, whereby the supply chain would have to normalise, and so that would keep (fuel) prices high,” Qantas chief financial officer Rob Marcolina said last month.
In April, Qantas flagged a fuel blow-out of $700 million to $800 million driven by oil price spikes linked to the Mideast conflict. With the Middle East conflict between the US and Iran rumbles on, the airline will update the market with its full-year results on August 27.
But elevated prices do not mean a risk of running out. Marcolina said Qantas’ fuel suppliers nevertheless have more confidence about fuel supply after finding new sources of the refined product, including from the US.
Supply has also been helped by the drop in foreign air carrier capacity coming into Australia, which frees up jet fuel for Qantas, Jetstar and Virgin. The initial jump in oil prices shook out some low-cost carrier routes, which led to a 20 per cent reduction in demand for jet fuel in Australia, so “that has created a buffer”.
The Australian government, meanwhile, has done a “really nice job” in securing supply around South-East Asia, Marcolina said.
”We’re going into fiscal year 2027 expecting that the fuel price will stay elevated for some time, and so from a planning perspective, capacity pricing, those types of things, we have to take that into consideration.”
The volatile situation requires more discipline in future planning. In addition to Project Sunrise, Qantas’ plan to use 12 ultra-long haul A350-1000s for travel between Sydney and London, Marcolina confirmed the airline is considering replacements for the spacious but costly to run A380s.
“We must think about the useful life of an A380 as we get into the start of the 2030s – that is the time that we will retire the 380s,” he said. But Airbus is sold out “into the 2030s. In some cases, the mid-2030s ... so we need to get in the queue”.
Marcolina notes Qantas was one of two airlines ordering planes during COVID, when it placed orders for A350s and Boeing 787s to replace its ageing A330 international fleet.
“We were the only ones doing at that time, and so now’s the time that we will be looking to do that for these [new] aircraft.”
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