Virgin Australia and Qantas are raising fares and cutting capacity to protect earnings, although Virgin said on Wednesday a big spike in fuel prices has not changed its profit outlook.
Virgin announced its fare increases in March, however all adjustments remain under review into the new financial year.
The higher prices would likely persist even beyond the time when oil costs eventually fell, Macquarie University finance professor Lurion De Mello said.
"Fuel volatility is being cushioned through hedging, but airlines are clearly using the opportunity to lock in higher pricing rather than pass any relief back to consumers," he told AAP.
"Even if fuel prices normalise later, history would suggest fares are unlikely to retrace meaningfully, particularly with strong demand and a benign competitive backdrop domestically."
With more travellers opting for local alternatives for holidays as war rages in the Middle East, domestic-focused Virgin appears inherently more protected than competitor Qantas, the chief executive of Flight Centre Group said.
"With the pressure on overseas travel, particularly in the tourists and holiday market, Australia domestically will do reasonably well," Graham Turner said.
"I wouldn't be surprised if Virgin certainly held their own."
Flight Centre's message to customers is to book and pay in full now to avoid the worst of price rises.
Qantas previously revealed its second-half fuel bill would rise as much as $800 million on previous forecasts, to $3.3 billion.
For Virgin, domestic capacity will fall by one per cent in the June quarter but is still expected to be slightly higher across the half.
Simultaneously, revenue per available seat kilometre - a key metric that reflects how much money is generated for each seat - will rise by five per cent across the second half and six per cent in the June quarter.
Virgin is confident about the effectiveness of its fuel hedging, even though it is facing an increased cost of between $30-40 million in the second half of its financial year.
The carrier, which will report its fiscal 2026 results in August, still expects second-half underlying earnings to be higher than the previous corresponding half, when it reported annual earnings of $664.4 million.
"In FY26, the group continues to experience strong customer demand, with higher fuel costs largely mitigated through effective fuel hedging and recent airfare and capacity adjustments," Virgin told the Australian stock exchange on Wednesday.
For the rest of its fiscal year, Virgin is hedged 92 per cent for Brent crude oil and 71 per cent for refining margins.
This means its exposure is limited to the unhedged portion of crude and refining margins.
In contrast, Qantas said it had hedged 90 per cent of its exposure to crude oil costs but remained exposed to the cost of refining crude into jet fuel.
Refining costs have soared from around $US20 a barrel in February, when the conflict began, to a peak of around $US120.
As with all airlines, fuel is one of Virgin's highest costs.
In the first half, it accounted for 21 per cent of total operating expenses with the equivalent of 3.4 million barrels of oil consumed at a cost of about $555 million.
Looking ahead to the new financial year, Virgin said ongoing volatility meant its capacity setting would continue to be reviewed.
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