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Why Australian airlines won’t be hit so hard by rising fuel prices

Posted: 26 June 2018 12:53 am
News

Qantas and Virgin passengers are less likely to get slugged.

Fuel is one of the biggest costs for airlines. Predictions that global fuel prices are set to increase mean fares are also posed to rise. The good news? Australia's major carriers, Qantas and Virgin, are less likely to feel the need to do that than other airlines.

That's because both airlines extensively use hedging, which (in hugely simplified terms) involves taking out long-term contracts to lock in fuel prices. That means that even if oil or jet fuel prices do go up, costs are more predictable and there's less incentive to pass on higher fuel costs in the form of higher ticket prices.

That's the expert consensus. "Given jet fuel prices are up around 50 per cent since fiscal 2017, hedging probably gives Australian airlines and Air New Zealand a competitive advantage because a lot of the US and Asian airlines aren't hedging," Moody Investor's Ian Chitterer told the AFR recently. In other words: it's less likely that local airlines will try and pass on those costs to passengers.

If you're trying to build up your points total, that's good news, because it means you're less likely to suffer "fare envy" when you see the difference between the full-service fares charged by Qantas and Virgin and the prices from some of their cheaper rivals. Indeed, they may even end up looking more competitive.

If your main goal is scoring the cheapest price possible, the #1 rule remains the same: take advantage of sales when they come up. The further ahead you're prepared to plan, the cheaper that ticket is likely to be. (Our constantly updated list of current flight sales is definitely your friend here.)

The very cheapest tickets are unlikely to actually cover the airline's cost. If I pay $19 to fly Tigerair from Sydney to the Gold Coast, that ticket price has nothing to do with the current price of fuel and everything to do with Tigerair using low headline prices as a marketing tool. I'm not complaining, obviously.

If fuel prices do rise extensively this year, it's less likely I'll see those fares in 2019. But I'm determined to enjoy them while I can.

Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears regularly on finder.com.au.

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