Australian airlines are halting entire routes and merging slots to ensure planes are full, as the aviation industry battles soaring jet fuel costs and supply uncertainty over the coming months.
Virgin has become the latest airline to update the market on its flight capacity and rising fuel costs, as the oil shock caused by war in the Middle East reverberates.
Australia’s second biggest airline told the ASX today that it would slightly reduce flights by 1 per cent in the three months to June 30.
It is understood that this will involve a broad consolidation of flights to get more passengers onto planes across Virgin’s mostly capital-city-focused fleet. No routes will be axed entirely, the ABC understands.
It follows a similar update by Australia’s biggest airline yesterday. Qantas is facing up to $800 million in extra fuel costs in the coming months, and has temporarily halted four regional domestic routes, and axed one indefinitely.
Australian aviation experts are warning of further disruption to routes and flight capacity, and telling flyers to expect higher prices, with budget carriers like Qantas subsidiary Jetstar expected to be especially vulnerable to tighter margins.
“Any air route that’s marginal, airlines would be crazy not to look at it and say, ‘Sorry folks,'” aviation expert Geoffrey Thomas told ABC News.
How much are airlines paying for jet fuel now?
The price of jet fuel has shot up by 150 per cent for the Asia and Oceania region, according to IATA figures, which is the highest surge in price for any region in the world.
Jet fuel is refined from the kerosene component of crude oil — the crucial energy commodity now in shortage globally, as the Strait of Hormuz remains blocked due to the war between Iran and the US and Israel.
Australian airlines typically mitigate some of their exposure to short-term fluctuating prices on fuel through the process of hedging, where they work with traders to lock in prices for longer periods.
Virgin told the ASX today it had hedged the vast majority of its Brent crude oil use and 71 per cent of its “refining margins” until the end of the financial year in June.
Hedging on refining margins is locking in the price of actually refining the oil into jet fuel.
The airline said it would increase fuel hedging in the short-term to mitigate the price volatility, “with other operational levers including fare and capacity adjustments available to be implemented over time”.
However, even with this mitigation, Virgin is facing an extra $30–40 million in fuel costs in the second half alone.
After June, Virgin currently has far less hedging on refining margins, at just 15 per cent.
This will expose the airline to the volatile pricing on global markets for refined product, with jet fuel refining margins increasing by as much as six-fold since the energy crisis began.
“The price of jet fuel has been extremely volatile and more than doubled since the end of February 2026, which impacts fuel costs for the June 2026 quarter,” Virgin said.
Qantas is far more exposed, warning of extra fuel costs of up to $800 million by end of June alone.
“The group has hedged approximately 90 per cent of its 2H26 exposure in crude oil, but is largely exposed to movements in jet refining margins,” the airline said yesterday.
“[Jet fuel refining margins] have increased from $US20 per barrel in February to a peak of around $US120.”
What are the airlines doing now in response?
Qantas is temporarily halting four routes to regional locations, and has confirmed it is indefinitely axing services between South Australia’s capital and the regional location, Mount Gambier.
This will leave beleaguered airline Rex with a monopoly on that route.
“It’s fair to say we expressed our disappointment to Qantas, to put it politely,” South Australian Premier Peter Malinauskas said yesterday, about Qantas’s decision to axe the route.
Rex has confirmed it will continue running planes between Adelaide and Mount Gambier, with 17 return flights weekly.
Rex did not respond to questions about ticket pricing amid the ongoing fuel crisis.
Qantas has confirmed it will increase fares.
Globally, airlines are following a similar pattern, with Delta Airlines’s boss Ed Bastian warning the United States carrier will spend $US2.5 billion more on jet fuel this quarter alone.
“We have to find ways to get that cost passed through to consumers,” Mr Bastian said in a videoconference briefing on yesterday, according to Bloomberg News.
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