Australia Inc starts to feel Iran war fallout, raising stagflation risk

• Qantas forecasts jet fuel costs up to A$800 million ($567 million) or 32% higher for H2 FY2025 as oil prices have more than doubled, prompting flight cuts and fare increases
• Westpac increased loan loss provisions to the highest level since the pandemic, warning that customers face pressure from higher inflation and interest rates due to energy market disruption
• National Australia Bank's business confidence index crashed 29 points to -29 in March, while consumer sentiment dropped 12.5% in April to the lowest in over two years

Summary: Australia Inc Starts to Feel Iran War Fallout, Raising Stagflation Risk

Key Developments:

Australian corporations are issuing profit warnings as the Middle East conflict drives up fuel prices and weakens economic conditions, heightening stagflation concerns.

Company-Specific Impacts:

• Qantas Airways: Australia's largest airline expects its jet fuel costs for H2 FY ending June to surge A$800 million ($567 million), representing a 32% increase from previous forecasts. Jet fuel prices have more than doubled, prompting the airline to cut flights, raise fares, and postpone a planned A$150 million share buyback.

• Westpac Banking Corp: The country's second-largest lender is preparing for rising bad debts at levels not seen since the COVID-19 pandemic, anticipating borrowers will struggle with higher prices and interest rates. The bank specifically cited concerns about energy-exposed customers.

• a2 Milk (New Zealand): Slashed fiscal 2026 profit guidance due to supply chain disruptions from the Middle East conflict.

Economic Indicators:

• National Australia Bank's business confidence index plummeted 29 points to -29 in March, a decline of magnitude typically seen only during major crises like the 2020 pandemic
• Consumer sentiment dropped 12.5% in April to its lowest level in over two years

Market Implications:

Reserve Bank of Australia Deputy Governor Andrew Hauser warned the country faces "the central bank's nightmare: the stagflationary shock - inflation up, activity down." Analysts indicate recession or stagflation risks have materially increased, with investors expecting more profit warnings if the Middle East conflict persists. The combined supply shock and inflation are creating a challenging environment across multiple sectors.