Qantas flags higher air fares as Ukraine war sends oil soaring

SYDNEY (BLOOMBERG) - Qantas Airways flagged a period of higher air fares to claw back rising fuel costs as Russia's invasion of Ukraine sends oil prices soaring.

"The group is very well placed to be able to recover the cost of fuel if it stays at the levels that it is at the moment," Qantas chief financial officer Vanessa Hudson said in an interview with Bloomberg Television on Tuesday (March 8).

Oil has rallied almost 30 per cent since the invasion, and traders and banks are betting prices will keep rising as the US considers a ban on Russian petroleum imports.

A protracted period of costlier fuel, one of the biggest single costs for any airline, threatens to pile more pressure on an aviation industry still struggling to emerge from the pandemic. 

Ms Hudson said demand for air travel at Qantas is strong enough to tolerate ticket-price hikes, a strategy the Australian carrier has typically used to manage higher fuel costs.

“What you need for that is strong underlying demand and relatively stable and rational capacity, and right now we are seeing that,” she said. “We’re seeing very strong leisure demand coming across both our domestic and our international markets.”

Every US$4 jump in the oil price adds 1 per cent to air fares, Qantas chief executive officer Alan Joyce said later Tuesday at a conference in Sydney organized by the Australian Financial Review.

“If we stay at these levels, air fares are going to have to go up,” Mr Joyce said. He said Qantas’ fuel bill was 50 per cent hedged for the third quarter of 2022 and 30 per cent hedged for the final quarter of the year. 

West Texas Intermediate crude for April delivery fell 0.5 per cent to US$118.77 a barrel on the New York Mercantile Exchange at 9.54am in Singapore after increasing 3.2 per cent on Monday.