Qantas slashes airfares to boost weak demand

Qantas is cutting airfares on domestic flights despite sharply rising aviation fuel prices, as it seeks to boost bookings amid a broader decline in consumer sentiment.

The airline will discount 2 million seats, a move expected to pressure Virgin Australia to follow with its own fare reductions, News.Az reports, citing foreign media.

Shares in both carriers have come under pressure as investors worry about higher fuel costs, despite Virgin having hedged most of its refining margins at the time of its ASX listing.

Qantas said 90 routes across its domestic and regional network would be discounted in both business and economy class until March next year, including the June long weekend and winter school holiday period.

Unlike Qantas, which has reduced fares in line with a 5 percent cut in capacity, Virgin Australia has increased domestic airfares in response to higher operating costs.

In a recent market update, Virgin said it “continues to experience strong customer demand” and expects revenue per available seat kilometre to grow by up to 6 percent, ahead of forecasts of 3 to 4 percent growth for the year.

Virgin’s refinery margin hedges are expected to roll off in the first half of 2027, although it remains 92 percent hedged against the Brent crude price.

Qantas is exposed to refinery margins despite being hedged on oil prices. Refining margins have surged to $120 a barrel since the war began on February 28, with the airline estimating this will add up to $800 million to previously forecast fuel costs. Brokers estimate the impact could be between $400 million and $500 million over the year, once higher demand for European travel is included in earnings calculations.

However, uncertainty over the economic impact of the US-Iran war is weighing on consumer sentiment. Qantas is hoping fare discounts and promotions, including double status credit offers, will encourage continued travel despite rising cost-of-living pressures.

“Australians’ appetite for travel continues, and this sale is designed to support our customers planning their next trip around Australia over the next 12 months,” said Qantas domestic chief executive Markus Svensson.

Travel demand started the year strongly but weakened after the April school holiday period, as cost-of-living pressures and fuel concerns affected bookings.

Virgin shares have fallen more than 20 percent since the escalation of conflict in the Middle East, closing at $2.48 on Tuesday.

Qantas shares have recovered somewhat after the airline said higher profits from European routes could offset fuel cost pressures, but remain about 8 percent lower than before the war, closing at $9.08 on Tuesday.

News.Az 

By Nijat Babayev