Air New Zealand Ltd (ASX: AIZ) shares are in focus today after the airline warned that surging jet fuel prices have created a material external shock for the global aviation industry.
The airline released a market update on Thursday morning, cutting its FY 2026 outlook and outlining a range of actions to protect earnings and preserve liquidity.
While this is an Air New Zealand update, it could have implications for Qantas Airways Ltd (ASX: QAN) shares.
What did Air New Zealand say?
Air New Zealand advised that elevated and volatile global jet fuel prices have had a significant impact on its FY 2026 outlook.
The airline said jet fuel prices were around US$85 to US$90 per barrel before the escalation of conflict in the Middle East. Since then, they have traded between approximately US$160 and US$230 per barrel over the past 10 weeks.
This has created a major cost headwind. Air New Zealand now expects its second-half FY 2026 fuel cost to be approximately NZ$980 million, compared with the NZ$740 million assumption used at its interim result. That implies a NZ$240 million headwind to its expected FY 2026 result, including hedging.
The company said it is around 85% hedged against its second-half FY 2026 Brent crude exposure, but remains exposed to the crack spread, which is the difference between crude oil and refined jet fuel prices. That spread has also been highly volatile.
Capacity, fares, and demand
Air New Zealand has already responded by reducing capacity.
It said it has made three targeted capacity consolidations, cutting overall group capacity by around 3% to 5% across its networks since the conflict began. If fuel prices remain elevated, further capacity updates could be announced in coming weeks.
The airline has also increased fares across its network. However, it noted that fuel cost recovery will take time because earlier bookings need to be flown before newer, higher-priced bookings flow through.
Demand has also started to soften. Booking momentum has moderated in recent weeks, with domestic and trans-Tasman demand weakening. Outbound demand to some long-haul markets has also softened, while Asia inbound and cargo have been more resilient.
The overall impact has been significant. Air New Zealand now expects an FY 2026 loss before tax of between NZ$340 million and NZ$390 million. This assumes an average jet fuel price of approximately US$145 per barrel for the second half.
What does this mean for Qantas shares?
The read-through for Qantas shares is not hard to see.
Fuel is one of the biggest costs for any airline. If jet fuel prices and refining margins remain elevated, Qantas is likely to face the same broad industry pressure as Air New Zealand.
That does not mean Qantas will be hit in exactly the same way. Its route network, hedging position, fare structure, loyalty business, balance sheet, and domestic market position are different. Qantas also has a larger and more diversified business, which could help cushion some of the impact.
But Air New Zealand’s update highlights three risks investors may now be watching closely.
The first is margin pressure. Higher fuel costs can quickly eat into airline earnings if they are not fully recovered through fares.
The second is demand. Air New Zealand’s warning that fare increases need to be managed carefully is relevant for Qantas as well. Push fares too hard, and some passengers may delay or cancel travel.
The third is capacity. If airlines reduce seats to protect profitability, it can support pricing, but it can also limit revenue growth.
For Qantas shareholders, this update is a reminder that airline earnings can change quickly when fuel prices move sharply.
The post Air NZ warns of ‘fuel shock’, what this means for Qantas shares appeared first on The Motley Fool Australia.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.