World

Thu Apr 23

Airlines are facing higher fuel costs and cutting fares at the same time. How does that work?

Written by: Anita Manfreda, Associate Professor - Blue Mountains International Hotel Management School, Torrens University Australia

Trying to book a flight right now can feel absurd. Qantas and Virgin Australia are warning that higher fuel costs and disruption linked to the Middle East conflict are putting pressure on fares ^[1] and forcing capacity cuts ^[2].

Yet both airlines are running major domestic flight deals ^[3] amid softer demand at home.

If airline costs are rising, why are some fares going up while others are on sale?

A perfect storm

Travellers are seeing several disruptions collide at once.

The Middle East conflict ^[4] has disrupted a major aviation corridor, affecting fuel supply and flight routes, while also reducing overall seat supply. At the same time, fuel prices have risen sharply, adding approximately A$145 per passenger ^[5] on long-haul flights leaving Europe.

Capacity is tightening, too. Qantas ^[6] and Virgin Australia ^[7] have both reduced domestic flights in response to rising costs and uncertainty.

But demand has not disappeared, especially for long-haul travel to Europe ^[8], and all this is unfolding just as the northern summer peak season begins.

Longer routings, higher fuel costs, tighter capacity, seasonal travel and softer domestic demand are creating a volatile market for travellers.

How airlines price and operate in a disrupted market

Airlines do not simply pass higher fuel costs evenly onto every ticket. Fuel is a major expense, but many carriers lock in fuel costs in advance, meaning cost shocks are absorbed unevenly and over time ^[9].

Airfares are shaped by strategy, as much as by cost. Airlines use dynamic pricing and personalised offers ^[10] that vary by demand, competition, booking conditions and extras added onto the fare.

In this market, they move planes to busier routes, trim extras, increase extra fees, cut weaker routes and protect stronger ones.

passengers check in at the Virgin airlines counters, the domestic terminal

Travellers may need to stay flexible or absorb higher costs. Tracey Nearmy/AAP

Airlines are managing very different conditions across their networks.

Demand remains strong on long-haul routes, with nearly half a million Australians expected to travel to Europe ^[11] this winter. Qantas is redeploying aircraft ^[12] from US and domestic routes to capture that demand.

Domestic markets are more price-sensitive. This helps explain why Qantas and Virgin Australia warn about rising costs and reduced flight capacity while simultaneously launching large-scale domestic sales ^[13]: discounting helps fill seats, protect cash flow and encourage demand in a softer market.

What this means for travellers

This volatility is doing more than creating confusion around prices. It is changing how travel works, and who can still afford to take part.

While access to air travel has always been unequal ^[14], uneven airfare rises can widen the divide. Travellers who can book early, stay flexible, or absorb higher costs can keep travelling. Others may have to delay, reroute or abandon long-haul plans altogether ^[15].

The effects ripple through the wider tourism system. When routes are cut or disrupted, demand shifts. Then destinations in remote or harder to reach ^[16] locations that rely on visitors from afar feel the impact quickly.

This means some long-haul destinations may become more exposed, while domestic and shorter-haul markets may benefit as travellers look for cheaper and simpler alternatives. What looks like a pricing problem is also a reshaping of where tourism demand goes.

3 tips for travellers

As travellers, we cannot control geopolitical tensions, fuel prices or airline decisions. But we can adjust how we book and travel.

First, look beyond the headline fare. With airlines under pressure, more costs are being shifted into extras ^[17], such as surcharges for baggage, seat selection or flexibility. So travelling lighter or avoiding add-ons can make a difference.

Second, do not assume the old rules apply. Booking early is not always cheaper. With disrupted routes ^[18], some travellers are booking more than one option and then cancelling back-up options at the last minute. So seats can reappear late, and sometimes at lower prices if airlines need to fill them quickly.

Third, rethink the route. The most direct option may no longer be the cheapest or most reliable. Different hubs, split tickets or longer stopovers can offer alternatives. Tools such as generative AI may help travellers ^[19] compare options faster in an increasingly messy market.

For some, it may mean rethinking the trip itself: choosing closer destinations, travelling off-peak or taking fewer but longer trips. This can reduce the need for multiple flights across the year and encourage deeper engagement with destinations ^[20].

However, it also requires travellers to be prepared for last-minute changes as routes shift and flights are cancelled or reinstated.

But there is a limit to how far strategy can help. Shifting prices, routes and schedules don’t just reshape travel, they narrow who can realistically keep doing it.