Qantas' Fuel Cost Rollercoaster Still Ends in a Beaten FY26 Result

Middle East conflict drove sharp swings in jet fuel costs through 2026, but Qantas absorbed the hit well enough to beat expectations anyway.

7 Oct 2026 · 4 min read

Qantas swung with the Middle East conflict through 2026, falling to around $8.37 in March as jet fuel costs spiked during the Iran war, before easing tensions and a sharp fuel price retrace drove a 27 percent quarterly rally, and an August result showed the airline still beat expectations despite absorbing a real earnings hit.

A resilient domestic duopoly meets a fuel cost shock

Pendal Group described a good result in March that arrived just as domestic capacity and demand became imbalanced, with profit still growing 5 percent as expected, though Jetstar outperformed on strong revenue growth and new fleet contribution while Qantas International underperformed. Sage Capital stayed constructive on Qantas's supportive domestic duopoly structure and pricing power, while cautioning that near-term earnings pressure looked likely given elevated jet fuel costs, noting travel demand is very resilient to recessions even as an earnings hit was coming in the short term. L1 Capital said its high-profile fund fell nearly 8 percent in a single month as its Qantas position was hit by higher fuel costs and softer travel demand tied to the Iran war, with the airline cutting domestic flights to manage a fuel bill that could run up to $800 million higher.

The airline said it would cut domestic flights as it tightens its belt to deal with a fuel bill that could be up to $800 million higher.

— L1 Capital, Article, April 2026

Easing tensions bring sharp relief

L1 Capital said the stock strengthened 27 percent over the June quarter as jet fuel prices retraced sharply, down 50 percent, following easing Middle East tensions, leaving fuel costs still around 20 percent above pre-war levels but providing material relief to earnings expectations, even as unhedged refining margins remained a lingering concern. Pendal Group said the stock also gained on signs of progress toward reopening the Strait of Hormuz and the associated oil price fall, and delivered an update on Project Sunrise, its plan to launch long-haul Sydney to London routes from October 2027 and eventually Sydney to New York.

Shares strengthened 27% during the June quarter as jet fuel prices retraced sharply (-50%) following the easing of Middle East tensions, leaving fuel costs still around 20% above pre-war levels.

— L1 Capital, Quarterly Report, June 2026

A relapse, then some funds walk away entirely

Blackwattle Investment Partners exited both Qantas and Virgin Australia in July, arguing that despite solid recent earnings from both carriers, the sector faces a challenging combination of elevated, unhedged jet fuel refining margins tied to continuing Middle East disruption and softening discretionary domestic travel demand. Pendal Group said the stock fell as renewed Middle East hostilities pushed jet fuel refining spreads higher again, weighing on its overweight position, though it noted Qantas has so far absorbed the disruption and has levers available to manage a sustained period of elevated fuel costs, with underlying travel demand staying robust.

August's result: a real hit absorbed, but still a beat

Pendal Group said Qantas beat FY26 expectations by 3 percent, even though the result would have been 17 percent higher without the negative impacts from the Middle East conflict. The positive surprise came from better than forecast International unit revenue growth, up 7 percent against guidance of 5 percent, partly offset by a weaker profit outcome in the Domestic division. Investors Mutual Limited, holding at hold, said it loves the current industry structure, describing Qantas and Virgin as a genuinely rational duopoly where both competitors are focused on growing profits rather than winning market share, though it acknowledged the best buying opportunity had been a couple of months earlier during the crisis, and is now simply a happy holder. Wilson Asset Management pointed to Qantas's biggest fleet renewal, including Project Sunrise, noting the new aircraft are far more fuel and maintenance efficient, while Project Sunrise shifts the revenue mix toward higher-yielding premium travel, improving the quality and predictability of earnings.

What fund managers say they are watching next is whether Middle East-linked fuel cost volatility settles for good, delivery of Project Sunrise's October 2027 Sydney to London launch and the eventual Sydney to New York route, the efficiency benefits of the fleet renewal, and whether the domestic duopoly with Virgin continues prioritising profit over market share.