Qantas warns of higher fares, more Jetstar fees after profits slump to four-year low

The national carrier’s annual results, released on Thursday, revealed a sharp drop in profitability, driven primarily by higher jet fuel prices amid global tensions, including the conflict in Iran. Hudson declined to estimate the financial impact of Jetstar’s new carry-on luggage charge, introduced earlier this year, saying the fee was about offering customers 'choice' rather than a guaranteed revenue stream.

'We are seeing strong demand across both Qantas and Jetstar, and that gives us confidence that we can continue to optimise our revenue,' Hudson told reporters. When asked directly whether fares would rise, she said: 'We’ll look at all levers, including pricing, to ensure we cover our costs.'

The airline has not provided specific guidance on when or by how much fares might increase, but the prospect of higher prices comes as Australian households continue to grapple with elevated living costs. Jetstar’s carry-on luggage fee — a departure from the airline’s previous policy of including a small bag in the fare — has already drawn criticism from consumer groups, who argue it erodes the value proposition of budget travel.

Qantas’s underlying pre-tax profit fell to its lowest level since the 2021-22 financial year, when the airline was still recovering from pandemic-era border closures. The company has not yet released the exact figure, but the decline underscores the pressure on an airline that posted record profits just two years ago as travel demand surged post-COVID.

Hudson emphasised that the airline would continue to invest in customer service and fleet upgrades, but acknowledged that cost pressures were considerable. 'Fuel is our single biggest cost, and it’s been volatile,' she said. 'We’re managing it as best we can, but it has a direct impact on our bottom line.'

Analysts noted that the airline’s market position — with a dominant share of domestic routes and limited competition on some key corridors — gives it pricing power even in a tough economic climate. However, the move risks alienating price-sensitive travellers who have already seen fares rise significantly since the pandemic.

Jetstar’s add-on fee expansion is part of a broader industry trend towards unbundling fares, where passengers pay extra for services that were once included. While this allows airlines to advertise lower base fares, it can increase the total cost of travel for those who need extras like checked luggage or seat selection.

Why This Matters

Direct impact on travellers: Australian passengers may face higher fares on Qantas and additional fees on Jetstar, adding to already strained household budgets.
Broader cost-of-living pressure: The airline’s move signals that high fuel costs are being passed on to consumers, potentially feeding into inflation.
Competitive dynamics: If Qantas raises prices, rivals like Virgin Australia may follow suit, reducing price competition in the domestic market.

Background

Qantas enjoyed a post-pandemic boom, reporting record profits in 2023-24 as travel demand rebounded. However, a combination of higher jet fuel prices — exacerbated by geopolitical instability in the Middle East — and rising operational costs has squeezed margins. The airline’s low-cost arm, Jetstar, has traditionally been a key growth driver, but its recent introduction of a carry-on luggage fee has sparked controversy. The company argues it is aligning with global budget carrier practices, while consumer advocates say it is a disguised price hike. The annual results released Thursday mark the lowest pre-tax profit in four years, a stark reversal from the recent highs.

Key Perspectives

Qantas management: CEO Vanessa Hudson argues that strong demand and unavoidable cost pressures necessitate revenue optimisation, including possible fare increases and expanded fees. She frames the Jetstar luggage charge as offering customers choice, allowing lower base fares. Consumers and passenger groups: Travellers, particularly on budget routes, worry that add-on fees erode the affordability of air travel. Consumer advocacy groups have criticised the lack of transparency in pricing and the cumulative cost of unbundled fares. Critics and analysts: Some analysts question whether Qantas’s dominant market position allows it to push through price increases without losing customers, but warn that doing so risks public backlash and regulatory scrutiny. The Australian Competition and Consumer Commission (ACCC) has previously flagged concerns about airline pricing practices.

What to Watch

Jetstar’s revenue and passenger numbers: The impact of the carry-on luggage fee on ticket sales and ancillary revenue will be revealed in upcoming quarterly reports.
Qantas fare adjustments: Any official announcement of fare increases, particularly on domestic routes, will be a key indicator of the airline’s strategy.
Fuel price movements: Continued volatility in global oil prices, driven by Middle East tensions, could force further cost increases or price hikes.
Regulatory response: The ACCC may scrutinise the airline’s pricing practices, especially if fares rise significantly while competition remains limited.

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