The global average jet fuel price for the week ending March 13, 2026, was about USD 175 per barrel, per the IATA-Platts Jet Fuel Price Index. This was 76% higher than two weeks prior, before the Iran war began. Brent crude is now well over USD 100 per barrel, up roughly 50% since February.

Why it matters: Fuel cost is typically 20%-25% of an airline’s revenue, and short-term fluctuations can vaporize profits. Air New Zealand, Qantas (ASX: QAN), and Virgin have all hedged more than 80% of their exposure to Brent crude for the second half. But refiner margins are unhedged and have nearly tripled.

  • Hedging Brent is generally sufficient to protect against fuel spikes, as jet fuel typically moves in tandem with crude. But the current situation is not typical. Fuel costs have surged too quickly for higher ticket prices to meaningfully offset and lower our fiscal 2026 earnings forecasts.
  • We also expect a slightly higher fuel bill through fiscal 2027, in line with Brent futures, before moderating to our unchanged midcycle Brent assumption of USD 65/barrel. We expect price increases to offset the fuel bill if prices stay elevated for longer, notwithstanding potentially lower demand.

The bottom line: Our long-term forecasts are broadly intact. We maintain our NZD 0.80 (AUD 0.67), $10.00, and $3.00 fair value estimates for Air New Zealand, Qantas, and Virgin, respectively.

  • While movements in oil prices can lead to short-term swings in profitability, carriers’ long-term profitability has little to do with fuel, given that all players bear the cost almost equally.
  • Fluctuations in the fuel bill are passed through to customers, reflecting intense competition in the airline sector and our view that airlines globally lack economic moats.

Between the lines: We lower our fiscal 2026 pretax profit forecasts for Qantas by 19% to $2 billion, and for Virgin by 21% to $454 million. Our pretax loss forecast for Air New Zealand widens to NZD 234 million, from NZD 125 million before.

Jet fuel spike weighs on Qantas’ fiscal 2026 profit

Since the covid-19 pandemic wreaked havoc on the global airline industry, Qantas has rebounded stronger than ever. The domestic business, of which Qantas typically captures around a two thirds market share, returned to pre-covid-19 levels by the end of fiscal 2023.

The international recovery was more gradual, returning to pre-covid-19 levels by the end of fiscal 2025.

We expect that Qantas’ loyalty program, Qantas Frequent Flyer, to some extent cushions earnings volatility in the flying business. Amid a lack of flying activity, the loyalty business remained profitable and delivered stable cash flows. Qantas Frequent Flyer is essentially a capital-light business attached to a capital-intensive flying business. Consumers want to earn loyalty points when they fly, and status benefits are important to corporate passengers. The program generates earnings from the sale of points to hundreds of partners, including banks, supermarkets, telephone companies, and department stores. This offers more ways to redeem and earn points, attracting more customers, which in turn attracts new partners—a network effect but not enough to warrant a moat for the group.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.