Virgin shaves back capacity as fuel costs climb

“Fuel is one of the largest costs for Virgin Australia, at $554.7m for 1HFY26 representing 21 per cent of total operating expenses with the equivalent of 3.4m barrels of oil consumed,” the airline said.

“Virgin Australia operates a fuel hedging program to manage the risks from fuel price volatility which includes hedging both Brent crude oil and refining margins when economically viable.”

The news comes after Qantas Group earlier this week announced it would cut domestic capacity by five percentage points for the fourth quarter citing “continued volatility in fuel prices and the global economic conditions”, a factor Virgin has also pointed to in its decision.

“The price of jet fuel has been extremely volatile and has more than doubled since the end of February 2026 which impacts fuel costs for the June 2026 quarter,” said Virgin.

“Virgin Australia’s policy is to operate hedging with higher volumes in the short term to mitigate this price volatility, with other operational levers including fare and capacity adjustments available to be implemented over time.”

Virgin earlier this month confirmed that all of its wet-leased Qatar Airways-operated flights to Doha have been cancelled through mid-June.

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“As previously disclosed, the wet lease arrangement minimises the risk to Virgin Australia’s balance sheet and earnings, therefore is not financially material,” the airline said in its market update.

Both Qantas and Virgin have increased airfares due to higher fuel costs after Iran effectively closed the Strait of Hormuz, which sees around 20 per cent of global oil traffic. At the same time, Air New Zealand has been forced to cut flights, and Jetstar has reduced its services in New Zealand.

Speaking to the ABC on Wednesday, Federal Transport Minister Catherine King said airline fair increases and capacity reductions are “disappointing but understandable” amid the disruptions caused by the Middle East conflict.

“I think every airline, whether it’s Virgin, Qantas or Rex, and some of our independent air suppliers as well, are all experiencing the costs of jet fuel, and that’s the issue globally. We’re not immune from what’s happening in the Middle East, obviously,” she said.

“So, I don’t think it’s a matter in terms of competition. It’s certainly an issue in terms of fuel being one of the largest input costs that is in aviation.

“But also in terms of the price hikes, the ACCC is monitoring airline airfares, and they need to be able to explain very, very carefully to the ACCC any increases in costs that have to be able to be justified.”

In his latest update on Monday, the Minister for Climate Change and Energy, Chris Bowen, said Australia currently has 28 days of jet fuel on hand, as well as 38 days of petrol and 31 days of diesel.