The Qantas Airways Ltd (ASX: QAN) share price outperformed the S&P/ASX 200 Index (ASX: XJO) on Monday, the first trading day following Iran's drone and missile assault on Israel.
Shares in the ASX 200 airline stock closed flat yesterday, ending the day trading for $5.61. Dragged lower by jittery investors, the ASX 200 closed down 0.5%.
In early morning trade today, the world is still awaiting Israel's response to Iran's attack. An attack that was itself a reprisal for an Israeli airstrike on Iran's embassy compound in Syria, which killed a top Iranian general, among others.
With hope that both sides will show restraint and avoid an expanded Middle East war, the Qantas share price is down 1.6% at the time of writing.
That sees stock in the Flying Kangaroo up 4% in 2024; though shares remain down 16% over 12 months.
Which brings us to our headline question.
Is the Qantas share price at risk if an expanded Middle East war erupts?
Headwinds for the Qantas share price?
There are millions of reasons to hope for peace in the Middle East. Chief among them is the lives of millions of people that are at stake.
But as our beat is the markets, we turn to how an escalation in the region could impact the Qantas share price.
As Qantas isn't involved in military applications, a regional war would predominantly throw up headwinds for the company.
First, this could impact international travel demand. This could take a bite out of Qantas international revenues, just as these have been returning to pre-COVID levels.
Second, Qantas and other international airlines have already been forced to reroute aircraft around Iraq, Jordan and Lebanon when those nations temporarily closed their airspace in the wake of Iran's attack.
If those closures, and others, are reinstated over the longer term, it will add time and distance to Qantas flights, translating to higher costs.
Qantas' world-first non-stop flight from Perth to London is an early victim of the hostilities. While the London to Perth flight remains direct, for now, the Perth to London flight is making a stopover in Singapore to avoid contested airspace.
According to Qantas:
We're temporarily adjusting the flight paths for our flights between Perth and London due to the situation in parts of the Middle East We'll reach out to customers directly if there's any change to their booking.
The biggest potential cost blowout
Perhaps the biggest blow to the Qantas share price from an expanded Middle East war would be a soaring oil price.
Brent crude oil is currently trading for just over US$90 per barrel. But if production and shipping are disrupted in the oil-rich Middle East, that could easily soar past US$100 per barrel.
That matters because the biggest single variable cost for Qantas, and all airlines, is its jet fuel.
Qantas forecasted its FY 2024 fuel cost to be $5.4 billion "at current fuel prices" when it released its half-year results in mid-February. At the time the oil price was right around US$84 per barrel.
To give you some idea of how big a slice of Qantas budget this is, the ASX 200 airline forecasts total FY 2024 net capital expenditure will be $3.0 billion to $3.2 billion.
So, a 10% or 20% increase in fuel costs could take a big bite out of profits.
And it's one reason Stuart Bromley, portfolio manager at Medallion Financial Group, has a sell rating at the current Qantas share price.
According to Bromley (courtesy of The Bull), "Crude oil prices can be volatile given wars in the Ukraine and the Middle East… Investors may want to consider cashing in some gains."
