Virgin Australia’s fuel hedging strategies pay off

By Andrew Curran.

Virgin Australia says effective fuel hedging, higher airfares, and a 1% capacity cut have helped insulate it from the worst of the recent fuel price spikes.

In an April 15 market update, the airline says it expects its fuel costs in the current six-month period to increase by just AUD30 – 40 million.

In contrast, earlier this week the Qantas Group said it expected its fuel bill to increase by up to AUD800 million over the first half of 2026.

The Qantas Group, which operates the Qantas and Jetstar brands, has approximately 90% of its crude oil needs hedged through to June 30. Virgin Australia has around 92% of its crude oil needs hedged over the same period, as well as 71% of its refining margins.

In contrast, the Qantas Group is highly exposed to the spread in refining margins. That company’s market update, issued earlier this week, noted refining costs have increased from around USD20 per barrel in February to over USD120 per barrel now.

To help mitigate the impact, the Qantas Group is raising airfares, reducing capacity (including suspending some routes), and warning of a profit hit.

Virgin Australia says its guidance for the remainder of the financial year is unchanged.

Virgin's hedging strategy mitigates fuel price volatility

With liquidity of AUD1.5 billion (USD1.07 billion) as of March 31, Virgin Australia says its balance sheet remains robust and its fuel hedging strategy helps to manage the risks caused by price volatility.

“Fuel is one of the largest expenses for Virgin Australia, at AUD554.7 million (USD395.2 million) for the first half of the 2026 financial year, representing 21% of total operating expenses with the equivalent of 3.4 million barrels of oil consumed,” the update reads.

For the first half of the 2027 financial year, covering the six months to December 31, 2026, Virgin Australia has so far hedged 93% of its crude oil needs and 15% for refining margins.

“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,” the update adds.

The company was circumspect about the extent of its airfare increases and capacity cuts, other than confirming seat capacity would reduce by 1% this quarter. However, over the six-month period to June 30, seat capacity would grow by 1%.

Suspended wet-lease flights have no real financial impact

Notably, Virgin Australia’s wet-lease agreement with Qatar Airways, whereby the latter carrier operates daily flights from Sydney (SYD), Melbourne (MEL), Brisbane (BNE), and Perth (PER) for Virgin Australia, is on ice until mid-June.

But Virgin Australia says the terms of the wet-lease agreement minimises any financial risk it faces and the service suspension is unlikely to have any material impact on earnings.

But the company acknowledges the ongoing global uncertainty and says its plans for the upcoming financial year, including previously disclosed capacity targets, are under review.

“The Group continues to monitor the external environment and retains flexibility to take further actions if required,” the update notes.

You can read the full market update here.

Photo: Virgin Australia.

Contact the writer: andrew@aerosouthpacific.com