Australian travellers should brace for higher international airfares as airlines warn that a sharp spike in oil prices, triggered by the escalating Middle East conflict, is driving up jet fuel costs and will probably lead to higher ticket prices.
On Tuesday, Air New Zealand was the first major airline to announce that it had begun hiking ticket prices to offset rising fuel costs, as it shelved its profit forecasts, citing “unprecedented volatility” in fuel markets.
Since the conflict erupted – and Iran shut down fuel shipments in the crucial Strait of Hormuz, while countering US and Israeli missiles with its own drones – Brent crude, the international standard, has risen as high as $US119.50 before easing back below $US95 on Tuesday after US President Donald Trump seemed to suggest the conflict could end “soon”.
The price for jet fuel, which has smaller inventories than regular petrol and needs specialised storage, have spiralled to between $US150 and $US200 a barrel. The International Air Transport Association’s jet fuel price monitor said the global average jet fuel price last week soared 58.4 per cent to $US157.41 from the week earlier.
While carriers like Qantas and Virgin Australia have used fuel hedging strategies to mitigate the impact, others face more direct exposure to the price shocks.
Air New Zealand assumed average jet fuel prices of $US85 a barrel last month when it made its full-year profit forecast – close to their level before the United States and Israel attacked Iran.
“Due to this unprecedented volatility, the jet fuel price assumption underlying Air New Zealand’s February 26, 2026 guidance is no longer appropriate,” the airline said on Tuesday, warning that the war was “expected to meaningfully affect second-half earnings”.
“In response, the airline has implemented initial fare adjustments,” it said.
Air New Zealand cautioned that if the Iran war led to “continued elevated jet fuel costs”, the airline may need to push up prices even further and adjust its network and schedules.
Both Qantas and Virgin Australia, in their half-year results last month, revealed they had hedged the majority of their fuel contracts in fiscal year 2026. Qantas said 81 per cent of its fuel was hedged for the second half of the financial year.
Travellers who have booked their northern hemisphere summer holiday already will be unscathed, but it could be a different story for those yet to finalise their plans, or flying at the last minute.
Flight Centre Travel Group said flights into Europe for that peak period have generally been booked and paid for well in advance.
“While oil prices won’t impact those travellers who locked in an airfare earlier in the year, it will start to show up on unsold tickets alongside supply and demand for last-minute travel,” said James Kavanagh, who heads the leisure customer business at Flight Centre.
So far, pricing for flights into July and August is still very competitive, between $1648 and $2778 a round trip, depending on your airline and travel dates across the peak season. The average fare price for a return ticket in July and August is about $2500 via an Asian hub en route to Europe, Flight Centre said.
Jet fuel prices are comprised of Brent crude and what’s known as the “crack spread”, or the difference between crude oil and the price of refined jet fuel.
Air New Zealand noted that since the conflict began, the crack spread had also been “particularly volatile”, widening from about $US22 a barrel before the war to as high as $US115 a barrel.
Qantas does not hedge refinery margins.
Since the onset of the conflict, prices for Brent crude and refinery margins “have risen significantly”, said Moody’s Ratings analyst Sean Williams.
“Refining margins, which have been historically relatively stable, are not typically hedged by the airlines due to the cost involved.
“As a result, across the industry we expect that higher jet fuel prices will affect the profitability of ticketed flights in the near term, particularly as fares are paid in advance.”
Fuel prices are not the only driver of rising costs for airlines. Airspace closures in the Middle East – in addition to those in place over Ukraine and Russia – result in longer flight times.
Subhas Menon, head of the Association of Asia Pacific Airlines, said that “if crude is rising 20 per cent, jet fuel is rising several times more as it is even more scarce, adding significant cost to operations together with crew resources, which are stretched due to longer flying times when airspace is closed”.
Even if Australian – and Middle Eastern – airlines can contain fuel costs in the short term through hedging, the jet fuel price spike is already having an effect elsewhere.
Credit ratings provider Fitch notes that while most Mideast carriers “typically maintain relatively high fuel-hedging coverage”, ranging from 50 per cent to more than 80 per cent of their exposure, many American carriers – including United Airlines and Southwest Airlines – have largely abandoned fuel hedging.
In an interview, United chief executive Scott Kirby warned that spiralling jet fuel prices will have a “meaningful” impact on the carrier’s first-quarter results.
“If it continues, we’ll feel it in [the second quarter] also,” he told CNBC.
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