Australian airline Qantas is set to reduce its domestic capacity and face significantly higher fuel costs in 2026 due to a surge in oil prices triggered by the conflict in the Middle East.
The aviation sector has been impacted by escalating oil prices following Iran’s blockage of oil tankers in the critical Strait of Hormuz trade route in response to joint US-Israeli strikes on key Iranian sites. Approximately 20% of the world’s oil trade flows through this strait.
Qantas, a leading international and domestic carrier operating flights from Heathrow Airport, anticipates the need to raise international airfares to partially offset the increased fuel expenses.
Despite hedging its oil supply, Qantas is projected to spend between $3.1 billion and $3.3 billion Australian Dollars on fuel by June 30. The company’s inability to hedge refinery costs, which have surged five times, will lead to an additional cost of $600 million to $800 million for fuel in the latter half of the year. However, this may be somewhat offset by higher-than-expected earnings from international flights.
With major Middle Eastern airlines cutting back services due to the conflict, Qantas foresees a doubling of revenues per available seat kilometre from international flying. Consequently, the airline is taking measures to mitigate the impact of increased fuel expenses by trimming domestic and regional services, reducing seat capacity by 5% in the upcoming weeks.
In response to the higher fuel costs and potential supply shortages, Qantas is streamlining its operations by discontinuing underperforming flights and focusing on high-demand capital city routes.
Qantas emphasized its collaboration with the government and jet fuel suppliers to ensure a stable fuel supply through April and into May amid the ongoing uncertainties in global fuel supply chains.
