Air New Zealand has suspended its earnings guidance and warned of potential fare increases as volatility in global jet fuel markets continues to rattle the aviation sector.
The carrier said “unprecedented” fluctuations in fuel prices mean the outlook it issued just last month is no longer reliable, with the airline now expecting a meaningful impact on its second-half earnings and signalling possible changes to its network and schedules if costs remain elevated.
Reuters reported some jet fuel prices have doubled since the start of the conflict. Airline fuel accounts for about 20–30 per cent of operating costs, meaning sustained increases can have a hefty impact on profitability.
While travel industry sources have remained fairly optimistic to date, there have been growing apprehensions about what will happen as the busy European summer season approaches from May.
An advisor Travel Weekly spoke to warned this could be “just the beginning” of other airlines jacking up their fares.
Qantas chief executive officer Vanessa Hudson said last week the airline remained relatively protected from immediate fuel price shocks due to its hedging strategy, but warned the recent surge in oil prices linked to escalating tensions between the US, Israel and Iran was a significant concern for the aviation sector.
“We’ve got pretty good hedging in place, but these are pretty significant impacts on aviation and we’re just continuing to watch how it all unfolds,” Hudson said at the Australian Financial Review Business Summit.
Qantas’ oil hedge is put at 81 per cent, whilst Air New Zealand has said it is 83 per cent hedged against brent oil.
Airlines in Asia are generally less hedged against fuel price volatility than their counterparts in Europe and the US, leaving them more exposed to sudden spikes in jet fuel costs. Reports suggest some carriers have already begun lifting fares on long-haul routes by around 15 per cent, while analysts warn further increases could follow if oil prices remain elevated and the conflict continues to disrupt airspace and fuel markets.
For the Australian market, any sustained increase in fuel prices is likely to be felt quickly on routes to Europe, where the majority of travellers fly via hub carriers in the Middle East or Asia rather than direct services. With airlines already navigating airspace closures and longer flight paths due to geopolitical tensions, higher fuel costs could place additional pressure on fares during the peak northern hemisphere summer travel period.
Who carries Australians to Europe?
It is not clear how much of the market travels with each airline. Data compiled by Analytic Flying shows that between June and May last year around 30 per cent of Australia–Europe traffic was carried by Emirates, followed by Qatar Airways (21 per cent) and Singapore Airlines (11 per cent).
If accurate, the dominance of Middle Eastern hub carriers means any disruption to capacity in the region could have a significant impact on the Australian aviation market.
ACCC steps in to monitor fuel pricing
Action from the ACCC could protect consumers from price spikes.
The ACCC has already made it clear it will take action if oil companies attempt to significantly increase prices domestically.
In a 16 March statement it said: “The ACCC will not hesitate to take action if representations and market behaviour by a petrol company contravene competition and consumer laws,” Ms Brakey said.
“We have written to major fuel companies to set out our expectations about domestic fuel pricing as these international events unfold.
“At this time, as at any time, we encourage motorists to use fuel price apps and websites to shop around to find the lowest prices.”
Australia currently has its highest fuel reserves in 15 years.
