Qantas Sees Australia’s Overseas Flight Growth Slowing

Capacity increases on international routes from and to Australia are slowing by half, according to Qantas Airways Ltd. (QAN), the nation’s biggest carrier.

Industrywide capacity growth into and out of Australia will be about 3 percent to 4 percent over the six months ending December, Qantas’s Chief Financial Officer Gareth Evans told a conference in Sydney today. That compares with an increase of 46 percent over the past four years, he said, and is about half the pace of about 8.4 percent according to Australian government data for available seats in the first five months.

International airlines, which added flights into the country as a mining investment boom buoyed its economy, are shifting routes as unemployment rises to a 12-year high. Qantas has stopped overseas flights from Perth, the capital of resource-rich Western Australia state, because it wasn’t “realistic” to run the routes given the levels of capacity, Evans said.

“We are going to see a more benign capacity environment internationally this year than we have seen previously,” he said at the CAPA Centre for Aviation conference.

Qantas is projected to post a loss of A$745 million ($691 million) in the year ended June, according to the average of eight analysts’ estimates compiled by Bloomberg, and will likely not return to profit until 2016.

Excess capacity on flights forces carriers to cut ticket prices to fill seats, undermining their profitability. When capacity growth more closely matches customer demand, airlines are able to lift prices and restore profits.

Qantas is cutting about A$1 billion of costs from the money-losing international unit, about half of the total across the group, he said. An alliance on international routes with Dubai-based airline Emirates also helped, he said, without saying when that part of the business would return to profit.

“Both of us would wholeheartedly agree that we would be a damn sight worse off without the relationship than we are with the relationship,” Evans said referring to the partnership.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net Subramaniam Sharma, Suresh Seshadri

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