Virgin Australia says its jet fuel bill will rise by an extra $30 to 40 million in the second half of its financial year, prompting capacity and fare adjustments.
Australia's second-largest airline has followed Qantas in cutting travel capacity and raising airfares in the wake of the conflict in the Middle East.
But Virgin Australia is more confident about the effectiveness of its fuel hedging, even though it's currently facing an increased cost of between $30-40 million in the second half of its financial year.
Qantas on Tuesday revealed its second-half fuel bill would rise by $800 million to $3.3 billion.
Virgin Australia also said fare increases and capacity cuts would help protect earnings and left its profit outlook unchanged.
The carrier, which will report its fiscal 2026 results in August, still expects second-half underlying earnings to be higher than the previous corresponding half, when it reported annual earnings of $664.4 million.
"In FY26, the group continues to experience strong customer demand, with higher fuel costs largely mitigated through effective fuel hedging and recent airfare and capacity adjustments," Virgin told the stock exchange on Wednesday.
For the rest of its fiscal year, Virgin is hedged 92 per cent for Brent crude oil and 71 per cent for refining margins.
This means its exposure is limited to the unhedged portion of crude and refining margins.
In contrast, Qantas said it had hedged 90 per cent of its exposure to crude oil costs but remained exposed to the cost of refining crude into jet fuel.
Refining costs have soared from around $US20 a barrel in February, when the conflict began, to a peak of around $US120.
Like all airlines, fuel is one of Virgin's highest costs.
In the first half, fuel accounted for 21 per cent of total operating expenses with the equivalent of 3.4 million barrels of oil consumed at a cost of about $555 million.
"To offset the impact from increased fuel and other operating costs, such as airport charges, Virgin Australia has adjusted airfares and capacity" in the current half.
Domestic capacity will fall by one per cent in the June quarter, but will still be one per cent higher across the half.
At the same time, revenue per available seat kilometre - a key metric that reflects how much money is generated for each seat - will rise by five per cent across the second half, and six per cent in the June quarter.
Looking ahead to the new financial year, Virgin said ongoing volatility meant its capacity setting would continue to be under review.
"The group continues to monitor the external environment and retains flexibility to take further actions if required," it added.
