David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

As a small, sparsely settled country on the fringe of the world's most populous continent, Australia's fortunes have tended to wax and wane with the tidal pull of Asia. Its biggest carrier, Qantas, is little different.

When China's economy boomed, burgeoning materials demand buoyed Australia but weighed on Qantas, as a strong dollar pushed up operating costs and encouraged rival airlines to compete for routes. Now that China is slowing, Qantas is reaping the benefits.

Every Little Helps
Qantas's margins are so thin that the smallest change in revenues and costs can make an outsized difference
Source: Bloomberg data
Note: Positive numbers for "operating costs" and "interest and tax" represent expenses for the company deductible from revenue

The carrier posted a record first-half profit on Tuesday and announced its second capital return in less than six months, as a cost-cutting program, cheaper fuel and reduced depreciation charges helped boost margins. Chief Executive Officer Alan Joyce has definitively put years of travails behind him, recovering from an annual loss of A$2.8 billion ($2 billion) in 2014. With no plans to quit but a share price that's traded sideways for six months, the question is what he'll do for a second act.

If you want to know an airline's ambitions, look where it's flying. Capacity -- measured in available seat kilometers, the number of seats on a carrier's planes multiplied by the total distance flown -- can make, but more usually break, an airline. Put too much capacity into a market and you risk driving ticket prices below your costs and racking up losses. Put too little in, and other carriers will elbow you aside.

Right now, Joyce's ambitions are focused overseas. Qantas increased capacity on international routes about 6.5 percent in the December half, just a smidgen behind the 6.7 percent industry-wide growth in the Asia-Pacific region during 2015. That's going to accelerate over the next six months: Seat availability on Qantas International will rise 9 percent in the year ending in June, and 12 percent on the international routes run by budget carrier Jetstar, Qantas said today. On domestic routes, the growth rate will be just 2 percent.

The expansion comes as Qantas's rivals in the region are also boosting flights:

Running Out of Legroom
Asia-Pacific carriers are edging into a capacity war
Source: Bloomberg data, company reports

Qantas has an advantage in this arena. Aviation is a brutal business and customers are rarely loyal, so efforts to increase market share generally end up setting cash on fire unless airlines can fly travelers around more cheaply than their competitors. Thanks to that weak Aussie dollar and all the cost-cutting Joyce has carried out over the past few years, Qantas can do that:

Cheap at the Price
A weaker Australian dollar is giving Qantas a cost advantage over the competition
Source: Bloomberg data, company reports
Note: Shows consolidated costs, excluding fuel, per available seat kilometer

Escaping its parochial base and becoming a bigger player in Asia has long been a dream for Qantas. The establishment of a premium airline in the region was one of the centerpieces of Joyce's  long-buried 2011 turnaround plan. Freeing up planes to serve regional routes was a key driver behind an alliance with Emirates the following year. Joyce has also been deepening Qantas's ties with China Eastern to give it a foothold in mainland China.

For an airline executive with an eye on his legacy, a chance to crack Asia represents a glittering opportunity. ``You grab the opportunities when they are there. You make sure that you're taking market opportunities before somebody else grabs them," Joyce said on an investor call Tuesday.

Shareholders don't seem convinced. They've already seen Joyce almost swamped by a domestic capacity war in 2014, and Singapore Air forced to bail out minorities in its discount carrier Tiger Airways amid a fight for supremacy by Asian budget carriers. Qantas's stock fell as much as 6 percent after the earnings. If you live by capacity, you can die by it too.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at

To contact the editor responsible for this story:
Paul Sillitoe at