Highlights

  • Jetstar will introduce a Priority Carry-on fee from 2 February 2027 for passengers wanting overhead locker access.
  • The new fee starts from A$25 one way and varies depending on route.
  • Jetstar’s base fares will include only one under-seat bag, with larger cabin bags requiring an additional payment.
  • Jetstar generated approximately A$3.12 billion in revenue during the six months to 31 December 2025.
  • The move highlights Qantas Group’s focus on ancillary revenue as a contributor to airline profitability.

Qantas Airways Limited (ASX:QAN) is expanding its ancillary revenue strategy through Jetstar’s upcoming carry-on baggage changes, with passengers required to pay for overhead locker access from February 2027. The move reflects a broader airline industry trend of separating base fares from optional services while testing customer acceptance.

Why it matters — ancillary revenue and the cost of flying

For low-cost airlines, headline fares often represent only part of the total passenger cost. Jetstar’s latest baggage policy increases the separation between the base ticket price and optional services.

From February 2027, passengers purchasing Jetstar’s lowest fares will receive access to one under-seat bag, while overhead locker use will require an additional fee.

Ancillary revenue from baggage, seat selection and priority services has become an important component of airline earnings. For Qantas Group, the strategy provides another avenue to increase revenue per passenger without directly increasing headline fares.

What happened — Jetstar changes carry-on baggage rules

On 5 August 2026, Jetstar announced changes to its carry-on baggage model, effective from 2 February 2027.

All fares will include one under-seat bag measuring up to 40 x 30 x 20cm. Passengers requiring overhead locker access will need to purchase “Priority Carry-on”.

The additional service includes a second bag measuring up to 56 x 36 x 23cm and earlier boarding access.

The fee will start from A$25 one way and vary by route, with examples including approximately A$33 for Sydney–Melbourne, A$39 for Perth–Bali and A$52 for Cairns–Tokyo.

Jetstar will also remove its existing 7kg cabin baggage weight limit and shift to size-based carry-on rules.

The numbers and financial context

Jetstar has positioned the change as an operational improvement, highlighting reduced gate baggage checks and a simpler customer process.

Chief executive Stephanie Tully said removing the 7kg limit would allow customers and crew to focus mainly on carry-on size requirements.

The financial impact is also relevant. In the six months to 31 December 2025, Jetstar generated approximately A$3.12 billion in revenue, while underlying Earnings Before Interest and Tax (EBIT) increased 12% to A$492 million.

Management has identified ancillary revenue as one contributor to earnings growth.

Across Qantas Group, additional revenue streams such as baggage fees, loyalty and optional services have become an important part of the post-pandemic earnings structure.

Background — Qantas’ dual-brand strategy

Qantas Group operates a dual-brand airline model, with Qantas positioned toward premium travellers and Jetstar targeting leisure and cost-conscious customers.

For the year ended 30 June 2025, Qantas Group reported underlying profit before tax of A$2.39 billion, up 15%, and statutory profit after tax of A$1.61 billion, up 28%.

Jetstar carried a record 16 million domestic passengers during the year.

Chief executive Vanessa Hudson, who commenced the role in September 2023, has focused on rebuilding customer confidence following regulatory and operational issues, including the ACCC “ghost flights” case, which resulted in a A$120 million settlement.

Strategic significance

The carry-on fee change reflects the broader low-cost airline approach of separating ticket prices from optional services.

For Jetstar, the strategy allows the airline to maintain competitive headline fares while generating additional revenue from customers who require extra services.

The move also reinforces the distinction between Qantas and Jetstar. Qantas focuses on premium services and long-haul capability, while Jetstar continues to emphasise cost efficiency and flexible pricing.

For shareholders, ancillary revenue remains a potential margin contributor because additional fees can increase revenue without requiring significant additional infrastructure investment.

Opportunities

The introduction of Priority Carry-on could provide incremental revenue across Jetstar’s passenger network.

If a portion of passengers choose the additional service, the revenue impact could be meaningful due to Jetstar’s passenger volumes.

The policy may also improve operational efficiency by reducing gate baggage disputes and simplifying boarding procedures.

A clearer separation between basic fares and optional services could allow passengers who travel lightly to access lower ticket prices while those requiring additional baggage pay separately.

Risks and counterarguments

The change may create customer dissatisfaction, particularly among travellers who previously viewed overhead locker access as part of standard air travel.

Clear communication and transparency will be important, as airline pricing practices remain subject to regulatory scrutiny.

The ACCC has previously focused on airline consumer disclosures, including concerns around additional fees and pricing transparency.

For Qantas Group, the challenge is balancing additional revenue generation with customer trust, particularly as Jetstar continues to rebuild brand perception among travellers.

What to monitor next

Investors will monitor how Jetstar communicates the new baggage rules during booking and whether customers accept the additional fees.

The Qantas Group FY26 results will provide further information on ancillary revenue contribution and Jetstar’s earnings performance.

Other areas to watch include competitor responses, particularly whether other airlines introduce similar baggage policies or use included cabin baggage as a market differentiator.

Regulatory commentary and customer feedback ahead of the February 2027 implementation will also be important indicators.

A balanced conclusion

Jetstar’s overhead baggage fee represents a strategic move to increase ancillary revenue and align pricing with services used by passengers.

The policy follows a broader global airline trend of separating base fares from optional features, but its success will depend on customer acceptance and clear communication.

For Qantas Group, the opportunity lies in increasing revenue per passenger and improving operational efficiency. However, maintaining customer confidence remains important as the company continues to balance profitability initiatives with service expectations.