Key Highlights

  • Underlying profit before tax was $2,064 million, down $330 million from $2,394 million.
  • Fuel costs were $5.7 billion, up 14%, with a net pre-tax impact from the Middle East conflict estimated at about $420 million in the second half.
  • Qantas Loyalty was the standout segment, with EBIT of $625 million, up 12%.
  • The final base dividend was 19.8 cents per share, fully franked, and a further $150 million buy-back will not proceed.

How is Qantas Airways (ASX:QAN) coping with a sharp rise in fuel costs after reporting lower profit for the year to 30 June 2026? On the evidence of its 27 August 2026 results, through hedging, pricing, cost programmes and a high-earning loyalty business, though the company itself flags fuel supply and demand as open risks. Figures are in Australian dollars.

The headline numbers

Qantas Group reported underlying profit before tax of $2,064 million for FY26, down $330 million from $2,394 million in FY25. Our own arithmetic puts the fall at about 14 per cent. Statutory profit before tax was $1,828 million, against $2,262 million, and statutory profit after tax was $1,289 million, down $316 million.

Revenue rose 7 per cent to $25,516 million. Underlying earnings per share were 95.7 cents, compared with 109.8 cents. The company's operating margin was 9.2 per cent, down 1.9 percentage points, and return on invested capital fell to 32.2 per cent from 50.8 per cent.

What is driving the pressure?

Fuel is the largest swing factor. Fuel costs were $5.7 billion, up 14 per cent. Qantas estimated a net pre-tax impact from Middle East conflict of about $420 million in the second half of FY26. It described a gross fuel impact of about $1,010 million, offset by roughly $400 million of hedging benefit and about $190 million of mitigations, split between revenue and cost actions.

Unit revenue grew, but costs grew faster. Revenue per available seat kilometre rose 4.6 per cent, while total cost per available seat kilometre rose 5.6 per cent, or 4.1 per cent excluding fuel. Capacity increased 3.4 per cent, passengers carried were broadly flat at 55.9 million and seat factor eased to 84.5 per cent.

Items excluded from underlying profit were also material. They included a $114 million provision and costs for the Qantas Flight Credits class action, $48 million of Jetstar Asia closure costs, $33 million of restructuring, $26 million for the Employee Ownership Plan and $15 million relating to a cyber incident.

How the segments performed

The group earns money from four main areas. Qantas Domestic delivered underlying EBIT of $907 million, down 14 per cent, on revenue of about $8.0 billion. Qantas International earned $371 million, down 38 per cent, on revenue of $9.9 billion, with premium cabin yield up 5 per cent.

Jetstar Group recorded $723 million, down 6 per cent, on $6.0 billion of revenue. Qantas Loyalty, which runs the Frequent Flyer program and related partnerships, was the standout at $625 million, up 12 per cent, with a 21.7 per cent margin. Corporate costs were a $278 million loss. Qantas International, including freight, carried a margin of about 4 per cent, against about 13 per cent for Domestic, on the company's figures.

This mix matters for understanding the business. Airline earnings are sensitive to fuel, capacity and travel demand, while loyalty income is less tied to fuel. Qantas expects Loyalty EBIT growth of 5 to 7 per cent in FY27 and says it is on track for a 2030 target of $0.8 billion to $1.0 billion.

Cash, debt and shareholder returns

Operating cash flow was $3,893 million, compared with $4,253 million. Net capital expenditure was $4.0 billion, leaving net free cash flow of negative $75 million, against positive $440 million a year earlier.

Net debt on the company's financial framework measure was $6.16 billion, inside its $5.5 billion to $6.9 billion target range; statutory net debt was $7,078 million. Qantas reported a Moody's-defined net debt to EBITDA of 1.6 times and a Baa2 stable rating, with liquidity above $13.3 billion.

The final base dividend was 19.8 cents per share, fully franked, taking base dividends for FY26 to 39.6 cents. Including a $150 million special dividend, $700 million was returned in the year. A further $150 million on-market buy-back announced in February 2026 will not proceed, as buy-backs were paused amid fuel price volatility.

Fleet and capital spending

Qantas took delivery of 17 new aircraft in FY26, including A321XLR, A220 and Jetstar A321LR models, plus 12 mid-life aircraft. Up to 31 more are committed for FY27. The first three Project Sunrise A350-1000ULR aircraft, intended for ultra-long-haul routes, are scheduled for April, May and June 2027.

Guidance for FY27 net capital expenditure is $4.3 billion to $4.6 billion. Pre-delivery and final payments could reach up to US$4.6 billion across FY26 to FY28. Net debt is expected at the upper end of the target range at 30 June 2027, moving towards the middle in FY28.

Guidance versus interpretation

The following are company expectations, not results. For the first half of FY27, Qantas expects Group Domestic and Group International unit revenue to be up 8 to 10 per cent each, with capacity down 3 per cent in Domestic, up 2 per cent in International and flat overall. First-half fuel cost is guided at about $3.6 billion, with Brent exposure 85 per cent hedged.

Other FY27 items include depreciation of about $2.4 billion, net finance costs of about $0.4 billion and a transformation target of about $475 million to offset inflation. Our own interpretation: the guidance leans on higher fares to cover costs, so the outcome depends on how demand responds.

Risks and things to monitor

Qantas names elevated jet fuel prices and possible fuel supply shortages linked to the Middle East conflict as risks. It also cites softer business and consumer confidence, rising interest rates and inflation, cuts to corporate and government travel, and airport and aviation charges rising faster than inflation.

The company's domestic on-time performance was 81 per cent.

Things to monitor include fuel prices and hedge outcomes, the timing of Project Sunrise deliveries, the scheduled Jetstar operations at Western Sydney Airport (the presentation gives inconsistent timing of October 2026 and the second quarter of FY27), and any resumption of buy-backs.