Qantas Airways and Virgin Australia are passing on the rising cost of petrol by increasing the price of airfares.

The airlines have not seen a dent in domestic bookings from higher inflation and interest rates, but fares will rise to help them recover the cost of elevated oil prices, their chief executives say.

The two biggest airlines in Australia are operating domestic capacity above pre-pandemic levels as demand rebounds.

“Qantas will respond to the high fuel prices by reducing capacity over July and August 2022 and increasing fares,” the Australian Competition & Consumer Commission wrote in its June airline competition report.

Qantas has also trimmed some flights and could take more action, Qantas Chief Executive Alan Joyce said on the sidelines of an industry conference in Doha on Sunday.

“We are seeing really strong demand internationally across the board and that is helping us recover oil prices in the international market,” Joyce told reporters.

“In domestic, we may need a little less capacity in the market to get that recovery and we are working through that at the moment.”

“What’s happened is fuel prices have spiked and our fuel bill next year will be 1.8 billion more than it was before COVID,” Joyce told 2GB last Thursday in response to questions of doubled airfare costs since before the pandemic.

Virgin Australia Chief Executive Jayne Hrdlicka said her airline had put through two fare increases, but was more wary of cutting capacity before it reached its target of 33 per cent domestic market share, especially when demand was strong.

“Most months we’re 33 per cent revenue share, but not quite 33 per cent capacity share,” she told Reuters in an interview.

“We’ll be carefully balancing a combination of capacity management and price increases.”

Virgin Australia was bought by US private equity firm Bain Capital in 2020 and is no longer listed publicly.

Hrdlicka said it had returned to a profit in April and an IPO was likely as early as 2023, but the timing would depend on market conditions.

“Equity markets, as you know, are not in a great place at the moment,” she said.

“So it will just depend on when there’s a good opportunity from a market standpoint.”

Greener fuel for future flights

Qantas and Airbus will invest close to $300 million to accelerate Australia’s sustainable aviation fuel industry.

Biofuels cut greenhouse gas emissions by around 80 per cent compared with traditional kerosene, but Australia is yet to produce its own sustainable fuel.

The country instead exports millions of tonnes of feedstock every year to be made into biofuels in other countries.

But the new Australian Sustainable Aviation Fuel Partnership will ensure biofuels can be developed and produced here in Australia.

“Without swift action, Australia is at risk of being left behind,” Joyce said in a statement.

“This investment will help kickstart a local biofuels industry in Australia and hopefully encourage additional investment from governments and other business, and build more momentum for the industry as a whole.”

Joyce and Airbus Chief Executive Guillaume Faury signed the partnership agreement on Sunday ahead of the International Air Transport Association’s general meeting.

The partnership, which is initially set for five years, will only support projects that are commercially viable and meet a strict set of criteria around environmental sustainability.

Qantas has already committed to using 10 per cent sustainable fuels in its overall fuel mix by 2030, while Airbus is working to deliver zero-emission aircraft by 2035.

“The increased use of sustainable aviation fuels will be a key driver to achieve net zero emissions by 2050,” Faury said in a statement.

“But we can’t do this without viable industrial systems to produce and commercialise these energy sources at affordable rates and near to key hubs around the world.

“This is especially true for a country like Australia, which is geographically distant and highly reliant on aviation to remain connected both domestically and internationally.”

Driving down the cost of biofuels will also ensure airfares remain affordable to consumers, Mr Joyce said.

“Aviation is an irreplaceable industry, especially for a country the size of Australia,” he said.

“Future generations are relying on us to get this right so they, too, can benefit from air travel.”

Extracted in full form: Aussie airlines to pass on fuel price increases to travellers | 7NEWS