Competition watchdog and Qantas chief Alan Joyce have both warned of an imminent rise in airfare costs, with a rise in oil prices set to slow the aviation sector's recovery from the COVD-19 pandemic.
Qantas chief executive Alan Joyce said on Tuesday that the current crude oil price of $130 a barrel -- a 13-year high from the Ukraine war, up from $73 in early 2022 -- translated to a 7 percent increase from the average. Airfare, with a 1 percent increase for every $4 a barrel thereafter.
“Unfortunately if they [oil prices] remain at these levels, airfares will increase,” Mr Joyce said at an Australian Financial Review event. "Seven percent isn't massive, but it will have an impact, I think, at some level of travel."
The Australian Competition and Consumer Commission warned of a significant drop in domestic airfares in the summer as carriers tried to stimulate demand amid the Omicron COVID-19 wave and Rex Airlines on inter-city routes Qantas, Jetstar and Challenged Virgin Australia.
But fares were rising in February, with the cheapest tickets jumping from $10 to $20 on flights between Sydney, Melbourne, the Gold Coast and Brisbane.
ACCC President Rod Sims said, "If these [oil] prices remain at stratospheric levels ... it will hurt consumers badly."
Fuel typically accounts for about a quarter of what airlines cost. Tony Weber, the airline's economist, said airlines would increase fares and more slowly increase the ability to return to the skies. This was especially true for international routes, he said, which burn more fuel and have less demand after the pandemic.
"Every extra seat they put in the market is going to cost them more materially, so it reduces the incentive to return seats to the market," said Dr Weber, a former chief economist at Qantas. "Even if fuel prices didn't go up, they needed to raise prices to repair their profits and their balance sheets."
Peter Harbison, president of the CAPA - Center for Aviation, said Qantas and Virgin were still trying to generate cash and get employees back to work by releasing cheap airfares to the market, but this would be temporary.
"After a while, the dire need for cash starts outweighing the much deeper need to make profits again," he said. "Obviously if oil prices stay there then prices should go up."
Flight Center boss Graham Turner said oil would increase fares, but how quickly foreign carriers could return to Australia would have a major impact, noting that some Australia-US fares were particularly high.
"Once capacity comes back, I think prices will return to normal," he told the AFR event.
Virgin Australia CEO Jeanne Hrdlica said last week that competition between airlines as they try to get their fleets back into the skies would keep fares low, even if some of the higher costs came down.
"So we can see that there is a slight increase in fares, but it is a very low base," she said at a Tourism Australia conference. "Consumers can really rest assured that there are going to be great value deals to be had in no time at all when they visit this wonderful country."
Mr Joyce said Qantas would be protected from higher oil prices in the short term by its hedging program, slashing 90 per cent of its fuel usage by mid-year, 50 per cent for the September quarter and 30 per cent for December. quarter.
Qantas' share price has fallen 11 percent over the past week, closing Tuesday at $4.52, reflecting a sharp drop in airline stocks around the world.