Qantas Airways Navigates Rising Fuel Costs Amid Regional Rivalry
Qantas Airways Ltd (ASX: QAN) shares have not been spared from the global surge in energy prices, especially since the outbreak of conflict in the Middle East. The airline has faced a significant financial challenge as jet fuel costs continue to climb, impacting its profitability and strategic decisions.
On 26 February—two days before the Iran war commenced—Qantas estimated that supplying its aircraft with jet fuel in the second half of the financial year (H2 FY 2026) would cost around $2.5 billion. This was already a substantial sum. However, by 14 April, with global oil prices skyrocketing, Qantas revised its forecast for second-half-year jet fuel costs to between $3.1 billion and $3.3 billion. This increase adds a potential $600 million drag on full-year profits from the previous estimate.
Despite these challenges, Qantas is not retreating. Instead, the airline is embracing the adage, "When life hands you lemons, make lemonade." This approach could see Qantas capitalizing on the struggles of its regional rival, Air New Zealand Ltd (ASX: AIZ).
Air New Zealand Faces Financial Headwinds
Air New Zealand recently reported an increase in its second-half FY 2026 fuel cost forecast to approximately NZ$980 million, up from prior expectations of NZ$740 million. As a result, the airline now expects to post an FY 2026 loss before tax of between NZ$340 million and NZ$390 million.
In contrast, Qantas has managed to increase its first-half-year underlying profit before tax by $71 million, reaching $1.46 billion. This performance positions Qantas to potentially take advantage of Air New Zealand's difficulties, particularly in the New Zealand market.
Expanding Presence in New Zealand
Speaking in Wellington this week, Qantas CEO Vanessa Hudson highlighted the importance of Australia as New Zealand’s largest international visitor market. She acknowledged the elevated fuel costs and the ongoing impact of the Middle East conflict on global routing and airline operations. Hudson emphasized that uncertainty is a constant in the airline industry but noted that Qantas is committed to supporting key relationships, including its partnership with New Zealand.
Hudson revealed that Qantas is making the biggest investment in the New Zealand market in its history. Over the last 12 months, more than 800,000 seats have been added between Australia and New Zealand across Qantas and Jetstar. This expansion goes beyond just adding seats; the airline has also invested in new infrastructure, such as its Auckland lounge, which represents a multi-million-dollar commitment.
"We're investing in Auckland because we see its potential, and we want to be the airline that realises it," Hudson stated.
Market Performance and Investor Sentiment
Since the onset of the Iran war, Qantas shares have declined by 14.17%, while Air New Zealand shares have fallen by 29.79% over the same period. This divergence highlights the different strategies and resilience of the two airlines in the face of rising fuel costs and geopolitical tensions.
For investors considering whether to invest in Qantas or Air New Zealand, the current landscape presents both challenges and opportunities. While Qantas appears to be taking proactive steps to strengthen its position in New Zealand, Air New Zealand faces significant financial hurdles that may affect its long-term prospects.
Conclusion
As the aviation industry continues to navigate the complexities of global energy markets and geopolitical conflicts, airlines like Qantas are demonstrating adaptability and strategic foresight. By expanding their presence in key markets and investing in infrastructure, they aim to weather the storm and emerge stronger. For investors, the decision to buy Qantas shares or consider other options will depend on a careful evaluation of these factors and the overall market outlook.
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