Middle East conflict blows out Qantas jet fuel costs by up to $800m in second half

Qantas Group (ASX: QAN) has warned that the conflict in the Middle East has led top a surge in jet fuel refining margins since February, blowing out its estimated second-half fuel bill to between $3.1 billion and $3.3 billion - up from the $2.5 billion guided at its half-year results.

The Australian airline has been hit by a spike in jet refining margins from around US$20 per barrel in February to US$120 per barrel, driven by disruptions to global refining capacity linked to the conflict.

Qantas has hedged about 90 per cent of its second-half crude oil exposure, but the airline remains largely unhedged on the refining margin component, leaving it exposed to the full force of the spike.

"While the group does not operate to the Middle East, Qantas has provided additional support to customers booked to travel on partner airlines, including more flexibility to move flights or receive a refund," says the company.

"Qantas continues to see strong demand for international travel to Europe as customers seek alternative routes.

"In response, the group has redeployed capacity from the US and its domestic network to increase flights to Paris and Rome.

"Given the continued volatility in fuel prices and the global economic conditions, the group has reduced domestic capacity in 4Q26 by around 5 percentage points. Affected Qantas and Jetstar customers are being contacted directly and offered alternative flights or a refund."

Qantas says it is working closely with the government and jet fuel suppliers "who continue to provide confidence in fuel supply for the remainder of April and well into May".

"We are closely monitoring the situation given the ongoing uncertainty in global fuel supply chains," says the company.

In addition to capacity cuts, Qantas has responded to the fuel crisis with fare increases and a deferral of its planned share buyback.

Qantas domestic capacity is now down 1 percentage point in the fourth quarter compared to the prior corresponding period.

Jetstar International's fourth-quarter capacity has also been cut further, to minus 7 per cent versus the prior corresponding period compared with minus 4 per cent guided in February.

The capacity reductions and higher airfares are flowing through to revenue metrics. The group now expects international revenue per available seat kilometre (RASK) growth of 4 to 6 per cent in the second half, up from the 1 to 3 per cent range guided at the half-year results.

Group Domestic RASK growth for the fourth quarter has been revised to about 6 per cent.

Capital expenditure guidance for FY26 has been tightened to "at or below $4.1 billion", down from the previous range of $4.1 billion to $4.3 billion.

Net debt is now expected to land "at or above the middle" of the group's $5.6 billion to $7 billion target range, a shift from the February guidance of "at or below the middle" of that band.

The group's $300 million interim dividend was paid as planned on 15 April, but the company says its $150 million on-market share buyback announced alongside the half-year results has not commenced.

The fuel cost warning follows a solid first-half performance for Qantas which reported underlying profit before tax of $1.46 billion for the six months to December 2025, up $71 million on the prior corresponding period.