Qantas freezes domestic growth
The war between Qantas and Virgin Australia over capacity in the domestic market appears over, with Qantas freezing plans to offer more seats.
The two airlines have been rapidly increasing their number of domestic flights, and the size of planes used on those routes, since last year, at the expense of profit.
Qantas Domestic's profit plunged by 74% in the first half of the financial year, as the airline's overall loss widened to $235 million.
It now plans to pull back from its capacity war with Virgin, and will add no new seats in the first three months of the 2014/15 financial year.
That will mean using smaller planes and fewer flights in non-peak travel periods than the airline had been planning.
Qantas said demand had fallen, due to weaker consumer confidence and a reduction in new mining work in Western Australia.
Macquarie analyst Sam Dobson said the announcement could spell the end for the capacity war – if Virgin follows suit.
"With the new Virgin Australia directors from partners Air New Zealand, Singapore Airways and Etihad due onto the Virgin Australia board next month, we doubt whether Virgin Australia will respond aggressively to Qantas' olive branch," he said in a note to clients.
One of those directors, Etihad Airways chief executive James Hogan, recently said the capacity war needed to end to improve Virgin's profitability.
Virgin boss John Borghetti in February refused to provide any hints about the airline's plans for capacity, and a spokeswoman on Wednesday reiterated that stance.
IG Markets analyst Evan Lucas said the capacity battle had gone on too long.
"Qantas had to slow down it's capacity war, but Virgin Australia themselves are also losing money hand over fist," he said.
"Domestic competition is driving margins through the floor and both are making strategic decisions that are detrimental to where they are sitting."
The move to freeze capacity growth from Qantas could reduce its market share of the local market, although it appears the airline is comfortable with a share of around 63%.
Email the Travel Weekly team at traveldesk@travelweekly.com.au
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