Qantas Forced to Keep Fares Low to Compete with Virgin Australia
Two Qantas passenger jets cross each other at Kingsford Smith International airport in Sydney. Daniel Munoz / Reuters
The Australian airlines are battling for a greater share of the lucrative business traveler market as well as facing rising competition from Asian airlines on overseas routes.
Qantas Airways Ltd., Australia’s largest carrier, said it expects the lowest yields in more than a decade for passenger flights as a capacity war with Virgin Australia Holdings Ltd. holds down fares. The shares fell.
Group yield in the six months ending December will fall 2 percent to 3 percent from a year earlier, Chief Executive Officer Alan Joyce said in a statement to the airline’s annual shareholder meeting in Brisbane today. The decline would leave yields at the lowest level in records dating back to 2003, according to data compiled by Bloomberg.
Qantas has added services after Virgin vowed to take market share in the profitable business-travel segment. Virgin has taken out credit lines from major shareholders and issued $797 million of bonds secured against its aircraft as it adds flights and upgrades lounges and business-class seats to crack Qantas’s 65 percent share of Australia’s local market.
“The domestic market is still absorbing capacity growth that has been double the long-run average,” Joyce said, according to a transcript of his statements. “This growth has come at the same time as weak underlying demand across the market.”
Qantas, up as much as five cents at A$1.53 before the shareholder meeting, closed down 3.4 percent at A$1.43, its biggest drop in 11 days. The stock has fallen 4 percent this year, compared with a 14 percent gain in the S&P/ASX 200 index.
Yield, a measure of earnings for each kilometer flown by a passenger, was 10.46 Australian cents in the six months ended December 2012, implying a range of 10.15 cents to 10.25 cents in the current period, based on Joyce’s estimate. The previous low was 10.28 cents in the same period of 2010, the data show.
Qantas’s group fuel costs in the second half will be a record for any half-year, Joyce said.
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