Qantas airfares set to rise as oil prices near $US100 a barrel
Qantas is increasing airfares to offset the rising cost of fuel and the weaker Australian dollar, as escalating tensions in the Middle East threaten to return the price of crude to $US100 ($158) a barrel.
From October 27, average fares on Qantas flights will rise by 3.5 per cent, the airline has informed travel agents, and Jetstar flights will increase by 3 per cent.
Airfares are once again set to rise as hopes that oil prices will fall are dashed by war in the Middle East. James Davies
In a trading update on September 28, Qantas said it would absorb the 30 per cent increase in jet fuel prices that had occurred up to that point, but closely monitor and adjust fares if prices continued to rise.
“The Qantas group has absorbed recent fuel cost increases but, given current tensions in the Middle East and broader economic factors including a weaker Australian dollar, the price of fuel is expected to remain elevated for some time,” the airline said.
Treasurer Jim Chalmers has warned that conflict in the Middle East could drive oil prices even higher, as economists predict next week’s inflation figures will exceed Reserve Bank forecasts and trigger a 13th interest rate rise.
Analysts said late last month that moderating capacity bottlenecks might make it more difficult for airlines to pass on all of the impost to customers.
“We recognise [passing on fuel cost increases] may be difficult under current conditions if Qantas was seeking to increase fares in absolute terms, however given our existing expectation for materially lower revenue per available seat kilometre in financial year 2024, we think this effect plays out in the form of more modest reduction in fares,” UBS analyst Andre Fromhyr said in a note.
In the first half of financial year 2024, analysts predict Qantas’ fuel expenses will be $200 million more than guidance offered in August and the depreciating Australian dollar would push other costs higher by $50 million. The airline also said it would spend an extra $80 million improving customer service, on top of a previously budgeted $150 million.
On Friday, Qantas shares plumbed a fresh one-year low, down 2¢ at $4.72. The stock has plunged more than 20 per cent over the past 12 months, as investors fret that airlines will struggle to hold their margins in a softening economy. Commonwealth Bank predicted if Iran is drawn into the Israel-Hamas conflict, Brent oil futures will trade above $US100 a barrel.
“Following this adjustment, average fares will remain below the peaks seen [late last year],” Qantas said. “The group is acutely conscious of the importance of affordable travel and will continue to have regular sales and special offers.”
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