Virgin Australia follows Qantas with fare hikes, fewer flights as it battles jet fuel costs amid Mid East war

Virgin Australia has followed rival Qantas and will start cutting flights as it battles to keep a lid on rising jet fuel costs amid a seesawing oil market roiled by war in the Middle East.

In a market update on Wednesday, the airline told investors that rising costs had largely been mitigated by fuel hedging that protects the company’s books against the risk of price volatility.

It has also increased fares and made seat capacity adjustments.

Jet fuel costs of $554.7 million in the six moths to the end of December made up 21 per cent of Virgin’s operating costs.

But fuel prices have more than doubled since the US and Israel started their bombardment of Iran on February 28 — attacks which prompted the country to block the Strait of Hormuz, a vital gateway for global oil flow.

Virgin expects the higher prices to add between $30 million and $40m to its cost base in the second half after it hedged 92 per cent for Brent crude oil and 71 per cent for refining margins.

“Fuel security remains an important issue for the aviation sector and broader economy,” the carrier said.

“Virgin Australia’s fuel suppliers continue to provide assurances regarding the near-term supply of aviation fuel to support its operations well into May 2026.”

Like Qantas, Virgin said it had offset the “significant” cost burden by hiking fares and would also now cut services.

Those capacity moves will likely see changes to parts of the network in May and June, focused on lower demand flights. Most of the changes could be concentrated on high-frequency east coast routes where passengers can be moved to alternative flights on the same day.

The airline has also revised its revenue-per-available seat forecast for the second half, with growth at 5 per cent — up from previous expectations of between 3 and 4 per cent Growth for the three months to the end of June will rise to 6 per cent.

The moves will allow Virgin to maintain full-year guidance, with strong customer demand set to improve underlying earnings in the first six months of 2026 compared to the same time a year ago.

Total capacity will fall one per cent for the three months to the end of June.

Virgin has already been forced to suspend services to Doha, which had been operated through a wet lease arrangement with partner Qatar Airways.

Shares in Virgin — which only relisted on the ASX last year after being pulled out of a COVID-induced administration thanks to private equity backers from Bain Capital — have dived more than 20 per cent since war began in the Middle East.

Qantas has been spared such a dramatic fall but is also feeling the effects of sky-high oil prices.

On Tuesday it upended the travel plans of countless passengers by revealing it, too had been forced to slash services and increase fares to recoup the extra costs.

The national carrier said affected customers were being contacted directly with offers of alternative flights or a refund if they no longer wished to travel.

Qantas said expects fuel costs in the second half of the current financial year to soar by between $600m and $800m to between $3.1 billion and $3.3b, up from an estimate of $2.5b issued just days before the start of the war.

“Unfortunately, with fuel costs at these levels, there is not enough demand to support our Busselton-Sydney service, and we’ve had to make the difficult decision to temporarily suspend the service,” a Qantas spokeswoman said.

“We know this is frustrating for customers and we look forward to restarting the service later this year.”

As part of the changes, budget offshoot Jetstar will temporarily suspend its Sydney to Busselton service from June to September, with flights set to resume in time for the September school holidays.

Jetstar will continue to operate three direct flights a week between Melbourne and Busselton Margaret River Airport, and Qantas’ mining sector charter operations in WA are also unaffected.

Overall, capacity across the group’s domestic operations are expected to be down one per cent in the June quarter, compared to a year ago, after a 5 per cent jump in capacity in the previous three months.