This article first appeared on GuruFocus.

Qantas Airways Ltd. (QABSY) is adjusting its near-term outlook as fuel dynamics shift sharply following the onset of the Iran conflict, with management indicating that jet fuel prices have more than doubled since its late-February guidance. While the airline has hedged roughly 90% of its second-half crude oil exposure, the remaining pressure appears to be coming from refining margins, which have expanded from around $20 per barrel in February to a peak near $120, creating a cost backdrop that could weigh on profitability despite partial hedging protection.

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That pressure is now feeding directly into updated cost expectations, with Qantas projecting its second-half fuel bill to reach between A$3.1 billion and A$3.3 billion, compared with its prior estimate of A$2.5 billion. The market response suggests investors are recalibrating, with shares falling as much as 3.8% in early Sydney trading and now down roughly 12% since the conflict began, reflecting concerns that elevated fuel costs could compress margins if sustained.

Operationally, Qantas is already making targeted adjustments, reducing fourth-quarter domestic capacity by around 5 percentage points, including within its Jetstar unit, while reallocating aircraft from US and domestic routes toward European destinations such as Paris and Rome. This shift appears to align with changing travel patterns as some passengers look to bypass the Middle East, and the airline noted it remains confident in fuel supply through April and into May, although ongoing volatility in refining margins and geopolitics could continue to influence both network decisions and earnings visibility.

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