Qantas to Boost Domestic Flights Amid Virgin Challenge

Qantas Airways Ltd. (QAN), Australia’s biggest carrier, plans to boost domestic flights to protect its 65 percent share of the market and fend off Virgin Australia Holdings Ltd. (VAH)

The carrier will add seats between Sydney, Melbourne and Brisbane, its busiest routes, in the year starting July 1, according to a statement today. The company is also deferring delivery of two Airbus SAS A380s to help cut capital spending by A$400 million ($410 million) to A$1.9 billion in the year ending June 2013, it said in a separate release.

Qantas Chief Executive Officer Alan Joyce plans to defend the Sydney-based carrier’s “profit-maximizing” 65 percent market share as Virgin adds seats and targets lucrative corporate customers with airport lounges and business-class seats. On intercontinental routes, he has cut capacity to revive operations losing A$200 million a year amid competition from Middle East carriers led by Emirates Airline.

“The domestic market is the pulse and heart of Qantas,” said Peter Harbison, executive chairman of CAPA Centre for Aviation in Sydney, an industry consultant. “They’re weak on the long-haul.”

Delivery of the two new A380s will be delayed until the year ending June 2017 from early 2013. The airline, which already has 12 A380s in service, will get its other six on-order superjumbos by the end of June 2019, it said.

Cost Cutting

Qantas is also cutting annual operating costs for international services by more than A$300 million, it said in a separate statement. The savings include as much as A$120 million by cutting flights on unprofitable routes and as much as A$100 million from streamlining heavy maintenance and engineering.

“It’s inevitable when you have such powerful competitors” on the long-haul routes to Europe, Harbison said. Gulf-based carriers including Emirates and Qatar Airways Ltd. can offer one-stop services from Australia to numerous European destinations. Qantas only flies to London and Frankfurt.

Qantas fell 1.2 percent to A$1.605 at the close of trading in Sydney. It has gained 9.9 percent this year, compared with an 8.4 percent rise for the benchmark S&P/ASX 200 index

Qantas’s budget arm Jetstar will also increase domestic services to protect market share from Tiger Airways Holdings Ltd. (TGR) Singapore-based Tiger Air is adding flights after last year suspending services for six weeks following safety violations. That halt reduced airline capacity in Australia by about 7 percent.

Photographer: Ian Waldie/Bloomberg

Alan Joyce, chief executive officer of Qantas Airways Ltd. Close

Alan Joyce, chief executive officer of Qantas Airways Ltd.

Close
Open
Photographer: Ian Waldie/Bloomberg

Alan Joyce, chief executive officer of Qantas Airways Ltd.

The market adjusted to the lower levels, with Qantas and Virgin benefiting with higher fares, Harbison said.

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Edward Johnson in Sydney at ejohnson28@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.