Qantas eyes fare hikes and expanded fees as profits hit four-year low

Qantas delivered its annual results on Thursday with a stark message: profits have fallen to their lowest level in four years, and the airline intends to make up the difference by charging passengers more.

The carrier's pre-tax underlying profit landed at $2.06 billion for the year ending June 30, a significant decline driven largely by fuel costs that spiked in the wake of the Iran conflict. Those elevated prices hit hardest on Qantas's aging A380 fleet, which burns fuel at a rate that no longer pencils out. The company has now decided to retire these aircraft starting in 2028 rather than 2032, accelerating a transition that will cost money upfront but promises savings down the line. Qantas plans to purchase up to 20 new planes from 2030 onward, focusing on more efficient Airbus A350-1000s and Boeing 787 Dreamliners.

But the airline is not waiting for new metal to arrive before acting. Chief executive Vanessa Hudson told analysts on Thursday that Qantas sees room to push fares higher. "We are not saying that everything that can be done has been done, because we're going to continue to drive where we see demand," she said. "We're going to continue to push to maximise revenue and clearly, obviously, maximise earnings." The statement came in response to questions about whether further price increases were planned. Passenger demand has remained resilient despite cost-of-living pressures, Hudson noted, giving the airline confidence that the market will bear higher ticket prices.

The real revenue opportunity, however, lies in Jetstar, Qantas's budget subsidiary. Last month, Jetstar announced it would charge passengers to stow carry-on bags in overhead lockers—a move that drew swift criticism from consumer advocates. But that was only the opening move. Jetstar's chief executive, Stephanie Tully, told investors on Thursday that the carrier has "a whole pipeline of ancillary initiatives" in development. The strategy is to unbundle services from the base ticket price, keeping advertised fares artificially low while extracting revenue through fees for checked baggage, seat selection, cancellation rights, and food and beverages. These non-seat charges already generate more than $1 billion of Jetstar's $6 billion in annual revenue. Tully indicated that figure will rise significantly.

The numbers show why Jetstar matters so much to Qantas's bottom line. The median Jetstar fare climbed to close to $150 in the year to June, up from nearly $100 in 2022. That jump reflects both the airline's willingness to test price sensitivity and its success in doing so. Jetstar remains a strong revenue earner for the group, and the company's annual accounts make clear that while international routes have become less profitable, the budget carrier continues to deliver.

Qantas's overall revenue rose 7 percent to $25.5 billion over the 12 months, but the airline absorbed an extra $610 million in fuel costs across its network. The company has hedged some of that exposure through financial instruments, but hedging only goes so far. Some of the pain has been offset by passengers who switched to Qantas after cancelling flights on airlines with Middle East stopovers—a windfall that arrived as geopolitical tension spiked. The loyalty scheme also performed well, increasing underlying earnings by 12 percent to $625 million, with a 6 percent growth in active members.

Investors responded positively to the results, with Qantas's share price rising more than 4 percent in early afternoon trading. The company remains confident in its points business, projecting at least 5 percent earnings growth in the coming financial year and targeting $800 million in loyalty scheme earnings by 2030. That confidence rests partly on new partnerships—Uber has become the fastest-growing source of frequent flyer points—and partly on the company's belief that customers will continue to value the scheme even as banks reform their credit card rewards programs ahead of an expected ban on card surcharges.