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Virgin Australia (ASX: VGN) has joined Qantas Airways (ASX: QAN) to increase fares and cut flights in response to jet fuel prices that have more than doubled since the end of February.
Virgin says the fuel price spike, driven by the conflict in the Middle East, is expected to add between $30 million and $40 million to its fuel costs in the second half of FY26.
To offset unhedged exposure, Virgin has accelerated fare increases which will see domestic revenue per available seat kilometre (RASK) grow about 5 per cent for the second half and 6 per cent in the fourth quarter, up from prior guidance of 3 to 4 per cent.
The carrier will also trim domestic capacity by 1 percentage point in the current quarter.
Despite the hit, the airline says its FY26 financial guidance remains unchanged, with second-half underlying EBIT and margin still expected to exceed the prior corresponding period.
Virgin credits its hedging position - 92 per cent of Brent crude exposure and 71 per cent of refining-margin exposure hedged for the half - with insulating the business from the worst of the price shock.
Fuel is one of the largest costs for Virgin Australia, totalling $554.7 million for the first half of FY26, representing 21 per cent of total operating expenses with the equivalent of 3.4m barrels of oil consumed.
"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," says the company.
"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.
"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 Virgin announcement follows a more aggressive response from Qantas, which yesterday disclosed that its second-half fuel bill is now expected to land between $3.1 billion and $3.3 billion.
Qantas reports that jet refining margins had spiked from about US$20 per barrel in February to roughly US$120 per barrel at their peak.
Qantas is pulling about 5 percentage points of domestic capacity out of the fourth quarter and has doubled its international RASK growth guidance to between 4 and 6 per cent.
The flag carrier has also suspended a planned $150 million on-market share buyback, citing the need to preserve balance sheet flexibility.
Both airlines note that fuel supply assurances from refiners extend only into May 2026 and they have flagged ongoing uncertainty around the duration and severity of the disruption.
Neither airline has provided specific route-level detail on where capacity will be cut or absolute dollar figures for fare increases.
However, Virgin Australia’s services to Doha operated through the wet lease arrangement with partner Qatar Airways are currently cancelled until mid-June.
"As previously disclosed, the wet lease arrangement minimises the risk to Virgin Australia’s balance sheet and earnings, therefore is not financially material," says the company.
Virgin's comparatively smaller response to the fuel crisis reflects the benefit of its hedging book and its narrower exposure to international routes, where fuel cost volatility tends to have a larger impact.
Qantas operates a significantly larger international network and has greater exposure to unhedged refining margins.
The divergence in scale of response highlights the different risk profiles of Australia's two major carriers heading into what both have characterised as an uncertain period for global aviation fuel markets.
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