Qantas are “doing whatever they can to protect the bottom line” – and that means cutting flights.
Aviation analyst Robyn Ironside says Qantas is bracing for a $400-500 million hit to full-year profits after an $800 million blowout to its fuel bill, and has begun trimming capacity on major capital city routes in a bid to limit the damage.
“They were probably on track for a profit above $2 billion,” Ironside said, “and now they might have to go a bit lower than that.” A healthy result is still expected – “but they don’t like to go backwards.”
The capacity cuts are focused on off-peak flights on major capital city routes, where Qantas can shift passengers between services with minimal disruption. The strategy is expected to remain in place until the end of the financial year in June, after which the airline has said it will provide a further update.
Despite the domestic squeeze, Qantas has been quietly adding international capacity. European routes are set to benefit, with Rome services moving to daily and Paris flights increasing from three to five times per week. Additional capacity is also being added between Perth and Singapore.
Qantas released its half-year results just two days before regional instability dramatically worsened, making it impossible for the airline’s guidance to have anticipated what followed. “I don’t think anyone could have predicted it was going to turn out the way it has,” Ironside said.
A ceasefire has since emerged, and the possibility of a more permanent resolution has offered cautious optimism. But Ironside warned that much depends on whether shipping through the Strait of Hormuz – through which an estimated 20 per cent of global oil supply passes – can return to normal operations. Comments from Washington about potential blockades have added a further layer of uncertainty.
For now, Qantas says fuel supply is not the immediate concern – it’s the cost. The airline has secured supply assurances into May, though what lies beyond that remains unclear.
Australia’s vulnerability has been underscored by the crisis. Prime Minister Anthony Albanese’s recent calls for Australians to reduce driving, followed by a diplomatic trip to oil-producing nations in Asia, have raised questions about whether the government acted quickly enough. “I guess the only concern is that he should have done it sooner,” Ironside said. “But better late than never.”
Virgin Australia, as a largely domestic carrier with ties to Qatar Airways, is also expected to feel the pressure. Though its fuel bill is smaller in absolute terms than Qantas’s, Ironside noted that Virgin’s share price has suffered more acutely due to that relationship, and a financial update from the airline is likely in the near term – its last results also predated the current crisis.
Regional tourism operators are among those most exposed, with high fuel prices threatening to push discretionary travellers toward closer-to-home destinations rather than making the longer journeys that sustain regional economies. “It would be so tough to be a regional tourism operator at the moment,” Ironside said.
