Qantas, Lufthansa warn of surging fuel costs due to Iran war

(Sharecast News) - Flag carriers Qantas and Lufthansa on Tuesday both warned of a hit to profits from higher fuel costs due to the Iran war. Australia's Qantas said its jet fuel bill would surge by 32% more than expected while Lufthansa forecasts higher costs for the rest of the year due to supply constraints.

Qantas now expects fuel costs for the six months through June to be between AUD $3.10bn - 3.30bn compared with the carrier's forecast of AUD $2.50bn less than two months ago.

Iranian attacks on large energy facilities in the Gulf and an effective blockade on the key Strait of Hormuz - through which 20% of global oil shipments pass - have put a chokehold on supply. Analysts expect repair work and supply resumption to pre-war levels will take months.

Qantas said demand for flights to Europe remained strong, but surging jet refining margins would impact on earnings.

"Jet fuel prices have more than doubled and remain highly volatile," the airline said, adding that around 90% of its first half exposure to crude oil was hedged, but warned it was still exposed to movements in jet refining margins which jumped from US $20 per barrel in February to a high of about $120 per barrel.

It continued to see strong demand for international travel to Europe as customers seek alternative routes. In response, the airline had redeployed capacity from the US and its domestic network to increase flights to Paris and Rome.

However, it had cut domestic capacity in the final quarter of the fiscal year by five percentage points due to the conflict.

Lufthansa chief executive Carsten Spohr said jet fuel supplies were expected to remain constrained through the year due to the Iran war, potentially leading to higher costs.

"Kerosene will remain in short supply and therefore more expensive for the rest of the year," he said in an interview with the Frankfurter Allgemeine Zeitung newspaper in an interview.

Spohr added that record revenues on Asian routes were offsetting the impact of rising kerosene costs.

However, he said grounding aircraft "may prove unavoidable, as the physical availability of kerosene is already at a critical level at several airports, particularly in Asia".

"Additional flights are no longer being accepted everywhere, in an effort to conserve fuel reserves. Furthermore, there is the market effect: while 80% of the global oil supply remains available, it comes at significantly higher costs-which is why ticket prices are currently on the rise," he said.

"This, in turn, will impact demand. Consequently, we have prepared various scenarios. The first scenario involves a 2.5% reduction in our capacity through the grounding of 20 aircraft. The second scenario entails a 5% reduction-or 40 aircraft-specifically targeting older, less fuel-efficient planes whose scheduled retirement we would simply bring forward."

Reporting by Frank Prenesti for Sharecast.com