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Australian Airlines Raising Fares, Reducing Capacity in Response to Higher Fuel Costs, ACCC Competition Report Finds
Australian airlines, including Qantas Airways (ASX:QAN) and Virgin Australia (ASX:VGN) have raised airfares and cut seating capacity on some routes in response to higher jet fuel prices brought by the Middle East conflict, the Australian Competition and Consumer Commission (ACCC) said in a Tuesday report.Jet fuel prices rose over 40% in early June compared with mid-February, and refining margins also remain significantly elevated, increasing cost pressures across the aviation sector, the ACCC's Domestic Airline Competition report found.Both Qantas and Virgin Australia locked in part of their fuel costs ahead of time to mitigate the short-term impact of higher prices. Rex, meanwhile, reported that it does not hedge against jet fuel prices due to its relatively smaller scale, the report said.Virgin Australia has reportedly increased fares by around 5% across domestic economy and business services since March, whereas Qantas has not disclosed the size of its fare increase.Passenger demand has remained steady, supported by Easter school holidays and sporting events, with overall seat capacity increasing nearly 2% in April from a year earlier. However, as many travelers book well in advance, especially for holidays, the latest data does not fully reflect the impact of higher airfares, the ACCC said."We expect this to become clearer over the coming months and will continue to monitor the impact on consumers and the broader aviation sector," said ACCC Commissioner Anna Brakey.Additionally, the report found that potential new entrants, including Zinc Airlines and Koala Airlines, could help boost competition in a highly concentrated sector where Qantas and Virgin Australia operate 98.5% of passenger flights.The regulator found that airline service reliability improved in April, with the industry's average on-time arrival rate of nearly 83% marking the best result reported since February 2022. The industry cancellation rate in April was just under 2%, below the average of 2.2%.Qantas shares gained over 1% in recent Wednesday trade, while Virgin Australia was nearly 1% higher.
ASX:QANASX:VGN
