Qantas Cuts Domestic Capacity 5% on Fuel Cost Rise

Australian airline Qantas Airways announced on Tuesday that it will reduce domestic flight capacity by about 5 percent in the coming months, citing sharply higher jet fuel costs triggered by the ongoing conflict in the Middle East. The cuts, affecting both Qantas and its budget subsidiary Jetstar, come as the carrier faces an additional 600 million to 800 million Australian dollars in fuel expenses for the six months ending June 30.

The surge in costs stems from U.S. and Israeli strikes on Iran that began in late February, disrupting oil supplies through the Strait of Hormuz, a vital chokepoint for about 20 percent of global oil trade. Iran has blocked tanker movements in response, causing oil prices to spike and refineries to curtail output. Jet fuel prices have more than doubled since the conflict started, with refining costs rising fivefold from around 20 U.S. dollars per barrel in February to a peak of 120 dollars. Although Qantas has hedged 90 percent of its crude oil exposure, it remains vulnerable to these refining expenses, pushing its total fuel bill for the period to between 3.1 billion and 3.3 billion Australian dollars, up from a prior estimate of 2.5 billion.