Qantas (ASX:QAN) Falls 33% on Fuel Cost Fears, But Europe Demand Tells a Very Different Story

Is Qantas a buy? Qantas (ASX: QAN) has fallen roughly 33% from its all-time high of A$12.62, set in August 2025, with shares sitting around A$8.45 as of Thursday’s close. While that decline began before the current conflict, the Iran war has accelerated the selloff sharply since late February as jet fuel prices surged from around US$85 a barrel to between US$150 and US$200. The market is treating this like a structural breakdown. We believe it is a temporary cost shock, and that distinction matters enormously for investors considering the stock this week.

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Why Investors Are Selling, and Why They Are Only Half Right

The concerns are real, and we are not dismissing them. Macquarie analyst Ian Myles warned that Qantas earnings could fall by A$315 million if the airline fails to cut costs and reduce flights. Airspace closures across the Middle East are forcing costly reroutes on long-haul services, and with Brent crude now well above US$100 a barrel, the fuel bill is climbing fast.

But here is the critical point: this is a cost story, not a demand story. The market appears to be pricing Qantas as if passengers have stopped flying. They have not.

The Demand Story Nobody Is Talking About

While investors focus on the fuel bill, Qantas is actively redeploying capacity to European routes, not cutting it. As Middle Eastern transit hubs have been thrown into chaos, with tens of thousands of flights cancelled since late February, travellers are actively seeking alternative routes. Qantas is positioning itself to capture exactly that demand.

Rather than absorbing higher fuel costs quietly, Qantas has already raised fares across its network, passing the burden directly to customers. This is what a company with real pricing power does. The recently reported HY26 underlying profit of A$1.46 billion, up 5% year on year, shows just how strong the foundation is beneath all this noise. The loyalty division continues to grow steadily, generating high margins that are completely insulated from whatever jet fuel does next.

A company expanding into Europe, hiking fares, and growing its loyalty business is not a company in structural decline.

So, Is Qantas A Buy? Here’s The Investor’s Takeaway

Morningstar published a note on March 20, maintaining its A$10 fair value estimate for Qantas, acknowledging the near-term fuel headwind while keeping long-term forecasts broadly intact. At current prices, that implies around 18% upside to fair value, and the stock trades at roughly 7.8 times forward earnings, a historically low multiple for Australia’s dominant carrier.

For existing shareholders, the fundamentals remain intact, and holding makes sense. For new investors, the entry point looks genuinely attractive, but one risk should anchor your thinking: the duration of the conflict. A ceasefire or meaningful de-escalation could trigger a fast rerating towards A$10. A prolonged war keeps near-term pressure on.

In our view, the market is mispricing a temporary cost shock as a permanent structural problem. The share price currently reflects the worst-case version of events, and the underlying business tells a very different story.