Qantas passengers to pay more for flights as fuel costs bite

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Passengers travelling with Qantas will start paying more for the average flight from next week, with the airline saying it can no longer absorb the rising cost of fuel.

Qantas confirmed on Friday it had to start passing on the cost of its inflated fuel bill, which has risen by more than 30 per cent since May, to customers.

Qantas passengers will pay 3.5 per cent more for flights from next Friday.Credit: AFR

Airlines all over the world have had to tackle higher energy costs due to the ongoing war in Ukraine and are bracing for the price of crude oil to increase as the tensions in the Middle East escalate. Qantas, which has also had to contend with a weak Australian dollar, will from October 27 charge passengers an average 3.5 per cent more for flights.

The price of crude oil is currently $US93.70 per barrel but could rise above $US100 if the conflict between Israel and Palestine continues to escalate and the involvement of surrounding countries grows.

A spokesperson for the airline said it does not expect the price of jet fuel to normalise anytime soon. However, the airline stressed that the adjusted cost of an average flight will remain below the 15-year highs recorded at the end of last year.

Qantas– which accounts for more than 60 per cent of the local market– first flagged a potential hike to airfares last month when it revealed the businesses fuel bill for the first half of 2024 was likely to increase by $200 million to $2.8 billion. It also forecast an additional $50 million impact due to the foreign exchange rate.

At the time, Qantas said it would “look to balance” the increases with the need for affordable travel during a period in which airfares are already more expensive than usual.

September data from the Bureau of Infrastructure, Transport and Research Economics shows best-discount ticket pricing across domestic trips has normalised to pre-COVID-19 levels, but capacity remains constrained which can push up the average airfare cost.

RBC analyst Owen Birrell said in a note to clients last week that airlines may consider reducing capacity to mitigate the hit to their earnings in light of their increasing fuel bills.

”For carrier profitability, managing the revenue of available seat per kilometre [versus the] cost per available seat per kilometre spread [the metrics most critical to airline margins] is critical,” Birrell said.

He also said airlines are well positioned to manage their cost bases – excluding the increased fuel costs – because carriers are less constrained by staffing and fleet issues and have access to newer, more efficient aircraft.

Shares in Qantas hit a 12-month low on Friday, down to $4.72. The airline business’ once enviable share price has fallen by close to 30 per cent over the past six months due to a series of scandals which have embroiled the carrier.

The country’s proxy advisors have unanimously rejected Qantas’ executive remuneration plan and have urged shareholders to vote against it at the airline businesses’ annual general meeting next week, with the Australian Council of Superannuation Investors, Glass Lewis, Ownership Matters, Institutional Shareholder Services and the Australian Shareholders Association recommending a strike.

Board director Todd Sampson is also likely to face a protest vote, with Ownership Matters and the Australian Council of Superannuation Investors recommending the marketing veteran step down from the board which is in the midst of a reputational crisis and faces a long road to regain the trust of customers, employees and investors.

The Australian Shareholders Association and Institutional Shareholders Services also told investors to vote against the planned performance rights for the airline’s newly minted boss Vanessa Hudson. The group reported a record $2.47 billion in underlying profit for the 2023 financial year, a record for the carrier business which accrued more than $7 billion in debt over COVID-19. This result sparked outrage from consumers and industry alike. Two weeks later, the Australian Consumer and Competition Commission announced it had taken legal action against the airline for allegedly selling tickets to already cancelled flights, which led to the early resignation of longstanding chief executive, Alan Joyce.

Qantas also recently lost its High Court appeal following two successive losses in the Federal Court which determined it illegally outsourced 1700 ground handler positions during COVID-19.

Chair Richard Goyder announced he would step down from his role at the carrier by the end of this year as part of a broader revamp of the businesses board, following immense pressure from shareholders and Qantas employees who argue Qantas has been poorly governed for years.

Virgin Australia and Regional Express have been approached for comment.

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