Qantas warns 7% hike in airfares as oil prices surge

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Alan joyce

The rising fuel prices are set to hit flyers as Qantas CEO Alan Joyce has warned the airline will be forced to raise airfares by as much as 7 per cent.

“Unfortunately if we stay at these levels, airfares are going to have to go up, we’re going to have to pass them on. But to put it in context, at these levels, around $US120 a barrel, it’s about 7 per cent,” Mr Joyce said.

The Australian Competition & Consumer Commission released its latest airline report, warning that climbing jet fuel prices could set back the travel recovery.

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from adelaide now 8.3.22

Qantas chief executive Alan Joyce has warned the airline will be forced to raise airfares by as much as 7 per cent in response to the soaring cost of jet fuel, as the oil price hits $US120 a barrel.

Speaking at the AFR Business Summit on Tuesday, Mr Joyce said Qantas had a strong hedging strategy for fuel, but that could only buy the airline time rather than spare it from the steep increases altogether.

“Unfortunately if we stay at these levels, airfares are going to have to go up, we’re going to have to pass them on. But to put it in context, at these levels, around $US120 a barrel, it’s about 7 per cent,” Mr Joyce said.

“It’s not massive but it will have an impact on some levels of travel out there. If it moves further, for every $US4 on the barrel, it’s another per cent that airfares have to improve by.”

He pointed out that motorists had it much tougher, with petrol prices up 30 per cent in response to the high cost of oil.

Mr Joyce predicted any fare increases Qantas imposed would be a fraction of its competitors, which were much more exposed to fluctuations in fuel prices.

“None of the American airlines hedge. So that means that they are completely exposed to it now,” he said.

“A lot of the Asia carriers have a lot lower level of hedging. And we think a lot of our domestic carriers don’t have hedging.

“So the imperative for them to move is a lot bigger than the imperative that we have to move.”

The main reason for rocketing oil prices – Russia’s invasion of Ukraine – was also addressed by Mr Joyce, who said Qantas had changed its London flight path to avoid Russia, so it wouldn’t have to pay the country millions of dollars in flyover fees.

“We made the conscious decision to move away from Russia, even though it means a slightly longer flight (to London),” he said, adding that Qantas had also terminated codeshare arrangements with Russian carriers Aeroflot and S7.

Mr Joyce’s remarks came as the Australian Competition & Consumer Commission released its latest airline report, warning that climbing jet fuel prices could set back the travel recovery.

ACCC chairman Rod Sims said the cost of fuel already accounted for about 25 per cent of airlines’ expenditure.

“I’m concerned for consumers and concerned for the health of the airlines and getting consumers back in the air,” Mr Sims said.

“When it’s 25 per cent of your costs and it’s going up through the roof, it matters.”

The report also noted that Virgin Australia had notched up a win over rival Qantas in January, claiming the biggest slice of the domestic market of any single airline brand.

Although the Omicron outbreak meant passenger numbers were well down across the board, Virgin carried 34 per cent in the month, ahead of Qantas and Jetstar with 31 per cent each, and Rex with 4 per cent. The report noted that Virgin’s market share was even higher on major city routes, where it held a 41 per cent share of domestic passengers.

A resurgence of business travel was expected to put Qantas back in front, with Mr Joyce revealing the airline had seen a significant surge since his previous update.

“Small and medium enterprise travellers moved dramatically in the last three weeks, from 50 per cent (of pre-Covid levels) to 70 per cent two weeks ago, and last week 80 per cent,” he told the summit.

“Corporate has gone from 30 per cent in February to 50 per cent, and then 60 per cent this week.”

Mr Sims said now that borders were open and airline capacity had returned, it would be easier for the ACCC to identify anti-competitive behaviour by airlines.

“It’s been hard with Covid to work out what’s going on but I think looking forward we can keep a very close eye on how Qantas and Virgin react to Rex on the one hand, and mid-year to (newcomer) Bonza, to make sure they’re not doing anything that’s anti-competitive,” Mr Sims said.

“They’ve got a real temptation to maintain the duopoly, but I don’t think that’s in Australia’s interest so we’ll be very ready to act if we see problems.”

To date, the expansion of Rex into nine routes already flown by Qantas and Virgin had delivered cheaper airfares to passengers, in a “great outcome for consumers”.

Mr Sims said Bonza would shake up the market further, when it attempted to become the fourth major domestic carrier.

“In my view Australia can handle three airlines. What I don’t think anyone knows but we will all be fascinated by, is just how Bonza goes flying routes nobody has ever flown before,” he said.

“80 per cent of their business is flying new routes and that’s how we can keep an eye on anti-competitive activity after all this time. If Qantas and Virgin start flying routes they’ve never flown before then there’s serious questions to ask.”

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