Qantas vs Virgin: who will win?

Qantas vs Virgin: who will win?
By admin


In the fierce turf war for Australian aviation domination, the Flying Kangaroo still stands atop the podium. But for the first time in the carrier's recent history, Qantas is under threat of coming off second best. 

The struggle between Qantas and Virgin Australia is an ongoing saga, but the competition intensified last month as both airlines revealed their financial results. Qantas laid down its hand first, reporting a $244 million loss and cancelling firm orders for 35 Boeing 787s. Virgin Australia, on the other hand, responded with a healthy $22.8 million profit.

Chief executive Alan Joyce blamed the airline's beleaguered international operations, record fuel prices and a $194 million bill from last year's industrial relations dispute for the loss. Meanwhile, Virgin Australia chief executive John Borghetti had no need to defend the figures, insisting that the results prove his plan to crack Qantas's dominant position is making headway. 

Not only has Virgin returned to profit, but Borghetti's scheme to woo business travellers with refurbished lounges and a new frequent flyer program has borne fruit. Since the debut of domestic business class last year, the airline has met its target of achieving 20% domestic revenue from the corporate and government market one year ahead of schedule.

THE NEW REALITY

Qantas defiantly maintains it is on the right track, but Virgin's figures have many questioning whether Qantas's grip on the domestic market is slipping. 

Macquarie Group transport equity analyst Russell Shaw seems to think so. While Qantas does maintain the lion's share, with 65% of capacity and 84% of premium traffic, he said market share at the front end has slipped by between 5% and 10%. But as Virgin muscles in, he said it's unlikely Qantas will relinquish its spot. "Qantas is facing increased competition from Virgin, but it is unlikely that Qantas's share of capacity will dip too far below 65% as they are very determined to keep this level by adding further capacity as, and when, their competitors do," he told Travel Weekly.

The figures prove Qantas is hurting from high fuel prices and weak inbound passenger demand. But Strategic Aviation Solutions chairman Neil Hansford said they are a clearer indication that Borghetti is on the right track. After ironing out Virgin's creases as a discount model, he's fundamentally remade the airline within two years of coming onboard. Having spent decades at Qantas before missing out on the top job to Joyce in 2008, Borghetti certainly knows his product. He also knows Qantas's soft spots and is hungry to win.

THE RESPONSE

Qantas has shrugged off concerns that Borghetti will step on its toes, and is bullish about retaining 65% domestic market share. But while its international arm continues to flounder, analysts are questioning whether Qantas would be better off ditching it altogether. Describing Qantas International as a "business going nowhere", Hansford said this operation is taking the gloss off its shining domestic business.

Joyce, however, is committed to making it work. Convinced it is critical to the business on a whole, he is determined to make it work, regardless of the trials ahead. "We believe that Qantas international is a core part of our business. It is very important that we focus on turning it around," he said. "There's no easy fix, no exit here that's going to solve it¬ but we are committed to it and believe we are on track to deliver."

MAKING IT WORK

The good news for the travelling public is that the turf war spells lower fares across the board. After revealing its record loss last month, Qantas announced it would boost domestic flights by 11% over the next four years. Not one to rest on his laurels, Borghetti responded with a 9% increase of his own over the next six months. 

Macquarie Group expects customers to be the biggest winners over the next few months, with airfares between Sydney, Melbourne and Brisbane to fall several percentage points as capacity increases. Ticket prices from the east coast to Perth will also soften, with Hansford noting that Australians will "never have seen it so good". 

Experts agree that the competition will step up as Virgin continues its push into the premium business market, but they also believe Qantas's dominant position is safe – for now.

Email the Travel Weekly team at traveldesk@travelweekly.com.au

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