Qantas Raises Fares, Cuts Domestic Capacity as Fuel Bill Hits $3.75B

By Grace Kim

Qantas expects its fuel bill to reach $3.75 billion for the final six months of 2026, up $1.1 billion from a year earlier, as it raises airfares and cuts domestic flights. Nine months after the conflict in the Middle East erupted, Qantas set out its pricing and capacity response at a market update ahead of its annual general meeting.

The airline said it would keep adjusting fares and capacity in response to higher fuel costs but disclosed no details on the size of its fare increases. That leaves sellers without specific fare levels or a clear domestic seat target.

Higher fares can lift booking value per trip, while fewer flights constrain volume and itinerary choice.

What changes for Qantas and Jetstar?

• The Sydney Morning Herald reported Qantas’s domestic cuts accelerating from 1% in Q1 2027 to 5% in Q2.
• Bloomberg reported a 4% first-quarter domestic cut for Qantas, double the 2% flagged in August, with Jetstar also scaling back schedules.
• Qantas international capacity is expected to grow 2% in both Q1 and Q2 2027.
• Jetstar international capacity is expected to shift from a 2% reduction in Q1 to 2% growth in Q2.

The accounts do not reconcile the first-quarter domestic numbers, leaving sellers to plan around a three-percentage-point spread. Qantas and Jetstar are retrenching domestically while preserving planned international growth.

For travel sellers, that mix shifts booking supply away from domestic flights and toward international capacity, particularly later in the second quarter. It could redirect customer spending, although the reported figures do not quantify the shift.

Takeaway: Domestic flight supply is set to contract, while international seats are scheduled to return.

Why is Qantas choosing yield over volume?

Rico Merkert, an aviation professor at the University of Sydney, told the SMH that the announcement reflected “discipline rather than weakness.” He said Qantas was prioritizing yield and profitability over market share, and that hedging protects Qantas more than unhedged US carriers, though he cautioned that the benefit is not permanent.

Qantas remains about 85% hedged for FY27. Its revised $3.75 billion fuel forecast sits $150 million above the previous $3.6 billion estimate, so the hedge may cushion the shock without erasing it.

Qantas said demand “remains resilient as customers continue to prioritise travel,” according to the SMH. The airline also said customers redirecting travel away from the Middle East supported international demand.

The reported figures do not quantify that resilience with booking counts, load factors or revenue. For sellers, the strategy could raise revenue per flight while reducing transaction volume and Qantas’s share if customers choose competitors.

Takeaway: Qantas is betting that higher fares and redirected demand can offset lower domestic volume.

What new aircraft and routes are coming?

Chief executive Vanessa Hudson said Qantas remains committed to fleet renewal. The first Project Sunrise aircraft is due in April, and the first non-stop Sydney-London flight is due to launch in October.

The aircraft and nonstop service could broaden sellable inventory for agencies and other travel sellers. But the update as reported provides no fares, unit economics or booking targets for either launch, so their revenue contribution remains unquantified.

Qantas plans to provide guidance with its first-half results in February 2027. Until then, its fare increases remain unspecified, and the conflicting domestic capacity figures remain unresolved.

Takeaway: February 2027 is the next checkpoint for whether higher fares, fewer domestic flights and restored international capacity can turn resilient demand into revenue without surrendering market share.