Updated ,first published
Qantas has flagged a blowout in fuel expenses, up to $800 million, from the oil price shock caused by the US-Israel war with Iran which analysts expect will create a sizeable hole in the company’s profits.
Its second half fuel bill is now anticipated to be $600-$800 million more than previously announced, at about $3.1 billion to 3.3 billion, the company said in a market update.
Qantas Group “is working closely with the Government and jet fuel suppliers who continue to provide confidence in fuel supply for the remainder of April and well into May,” the company said in a statement to the ASX. “We are closely monitoring the situation given the ongoing uncertainty in global fuel supply chains.”
Since the conflict kicked off on February 28, the airline has redeployed larger aircraft from North American routes onto routes flying to Singapore, in an effort to meet demand as Persian Gulf carriers are dramatically disrupted by the conflict.
Demand for international flights to Europe that avoid the Middle East has helped raise the airline’s expected international revenue growth to about 4 to 6 per cent, double previous guidance.
But rising fuel costs are also sapping demand for domestic travel.
The airline cut its fourth quarter domestic projections by around 5 percentage points, notifying affected Qantas and Jetstar customers of changes to flights. “[They] are being contacted directly and offered alternative flights or a refund”, the airline said.
The increase in Qantas’ international revenue is not enough to offset the costs linked to fuel, the company said. Analysts now expect Qantas’ full-year profit to take a $400-$500 million hit.
George Boubouras, managing director at K2 investments and advisory, said the update was “not a surprise.”
“It’s consistent with Qantas’ global peers … Besides (US-based) Delta Airlines – which has its own refinery – most global players have got some adjustments and headwinds to work through,” Boubouras said.
“Having said that the disruption in the Middle East may be a structural benefit for Qantas once they get through this very difficult cost phase,” he said, referring to Qantas’ network footprint which does not transit the Persian Gulf, now a choke point because of the US-Iran war.
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