The Qantas Group has warned its fuel bill could surge to as much as $3.3 billion in the second half of FY26, as escalating conflict in the Middle East sends jet fuel prices sharply higher and forces the airline to cut capacity and raise fares.
In a trading update, Qantas said jet fuel prices had more than doubled since its half-year results, driven largely by a spike in refining margins, which rose from about US$20 per barrel in February to a peak near US$120.
Despite hedging around 90 per cent of its crude oil exposure, the airline remains vulnerable to refining costs, pushing its expected fuel expense for the second half to between $3.1 billion and $3.3 billion. That is an increase of up to $800 million over the last projections.
Qantas said it was working with government and suppliers to secure fuel supplies, with current assurances covering operations through April and into May, but warned the situation remained volatile due to ongoing disruptions in global supply chains.
The airline has already begun adjusting its operations in response, reducing domestic capacity by around five percentage points in the fourth quarter and increasing fares across parts of its network.
It has also shifted aircraft away from US and domestic routes to boost services to Europe, particularly to Paris and Rome, as travellers avoid Middle Eastern airspace and seek alternative routings.
While Qantas does not operate flights to the Middle East, it said it was assisting customers booked on partner airlines by offering greater flexibility, including flight changes and refunds.
Strong demand for European travel has helped offset some of the disruption, with international unit revenue now expected to grow by 4 to 6 per cent in the second half — roughly double previous guidance. Domestic unit revenue growth is forecast at around 5 per cent.
The airline said about half of its fourth-quarter international revenue had already been sold before the conflict began, providing some insulation against market volatility.
Qantas added that it would continue to monitor conditions and retain the option to take further action if fuel prices remain elevated.
On the balance sheet, the group said capital expenditure for FY26 would come in at or below $4.1 billion, at the lower end of earlier guidance. A previously announced $150 million share buyback has been delayed amid the uncertainty, though a $300 million interim dividend will be paid on April 15.
Net debt is expected to sit around the middle of the airline’s target range by the end of June.
The carrier said it would defer providing detailed guidance for FY27 until conditions stabilise.
