Bloomberg News

Australia Awash With Flights, Hurting Airlines, Qantas Says

November 24, 2012

Australia Awash With Flights, Hurting Airlines, Qantas Says

The Qantas Airways Ltd. logo is displayed on a Boeing Co. 747 aircraft in Sydney. Photographer: Ian Waldie/Bloomberg

Australia’s domestic aviation market is awash with flights, benefiting passengers rather than airlines, said the head of Qantas Airways Ltd.’s (QAN) local business.

“There’s a lot of capacity sloshing round the Australian marketplace overall,” Lyell Strambi, chief executive officer of Qantas Domestic, said at a media briefing at Sydney airport today. “Ultimately the winners are the customers.”

Flight capacity in the domestic market in the December half is running about 12 percent more than its level last year, whittling profitability for carriers aiming to match the supply of seats to demand, Russell Shaw, an analyst at Macquarie Group Ltd., said by phone Nov. 7. A measure of business-class ticket prices has fallen 40 percent in the past year to two-decade lows as Virgin Australia Holdings Ltd. (VAH) stepped up competition with Sydney-based Qantas, Australia’s largest carrier.

There had been “some adjustments in capacity” in the last few months without any significant reduction in growth, John Borghetti, Virgin’s chief executive officer, said on a media call Nov. 20. “Competition is certainly very aggressive now and competition will always be aggressive,” he said.

A move announced today by Qantas to switch all services that fly between the Western Australian capital, Perth, and Sydney and Melbourne, to Airbus SAS A330s from May won’t significantly affect domestic capacity, Strambi said.

The bulk of additional seats that Virgin is adding come from switching to wide-body jets like the A330 on routes between Australia’s east and west coasts, Borghetti said last week. Qantas’s A330s will replace Boeing Co. 767s on east-west routes, which will be moved to the busier east-coast network, Strambi said today.

Virgin plans to buy a controlling stake in Tiger Airways Holdings Ltd. (TGR)’s local unit and to take over Skywest Airlines Ltd., the company announced Oct. 30, in a deal that would raise its share of the Australian domestic market to about 35 percent from 30 percent at the moment.

To contact the reporters on this story: David Fickling in Sydney at dfickling@bloomberg.net; Angus Whitley in Sydney at awhitley1@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net


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