Qantas Airways has issued a material market update revealing that jet fuel costs for the second half of FY26 are now expected to reach $3.1 to $3.3 billion, a significant increase from previous guidance. This revised forecast reflects the dramatic spike in jet refining margins, which surged from US$20 per barrel in February to a peak of around US$120 per barrel following geopolitical tensions in the Middle East. While the airline has hedged approximately 90 percent of its crude oil exposure for the period, it remains vulnerable to movements in refining margins, which represent the difference between crude oil and refined jet fuel prices.
The impact on profitability is substantial, though management has moved swiftly to implement mitigation strategies. The airline has adjusted its international network by redeploying capacity from US and domestic routes to increase flights to Europe, capitalizing on strong demand from customers seeking alternative routing away from Middle East conflict zones. Domestically, Qantas has reduced capacity by around 5 percentage points in the fourth quarter, a defensive measure that acknowledges the headwinds from both elevated fuel costs and broader global economic uncertainty.
Despite these challenges, the airline has managed to revise its unit revenue guidance upward. Group international revenue growth for the second half is now expected to be 4 to 6 percent, double the previous guidance, while domestic unit revenue is anticipated to grow approximately 5 percent overall and 6 percent specifically for the fourth quarter. This improvement reflects fare increases implemented in response to cost pressures, combined with the airline’s ability to redirect demand toward higher-margin European routes. It is worth noting that 50 percent of fourth quarter international revenue was already sold prior to the conflict, providing some revenue stability despite the volatile operating environment.
On the financial side, management has maintained its commitment to its stated financial framework. Capital expenditure for FY26 is now expected to come in at or below $4.1 billion, representing the bottom end of the previously guided range, suggesting the airline is being disciplined with investment timing. The company has also decided to pause its planned $150 million on-market buyback program given current uncertainty, though the $300 million interim dividend remains on track for payment in April. Net debt is expected to remain at or above the middle of the airline’s target range at June 30, 2026.
Looking ahead, investors should monitor fuel price volatility closely, given that jet refining margins remain the key variable beyond the airline’s hedged protection. The sustainability of the revised RASK guidance hinges on demand remaining at current levels across both domestic and international networks, an assumption that depends on the geopolitical situation stabilizing and global economic conditions not deteriorating significantly. Management has indicated it will provide an update on FY27 outlook at a later date once there is greater clarity on the operating environment. This announcement is price sensitive and has been flagged as material by the ASX.
View the full ASX announcement (PDF)
About Qantas Airways Limited (ASX: QAN)
Qantas Airways Limited provides air transportation services in Australia and internationally through its Qantas Domestic, Qantas International, Jetstar Group, and Qantas Loyalty segments. The company operates both full-service airline services under the Qantas brand and low-cost carrier services under the Jetstar brand, serving routes across Australia, New Zealand, Asia, North America, South America, Africa, and Europe. It also offers cargo, air freight services, and customer loyalty recognition programs.
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