Airline price war puts Qantas yield in tailspin

Qantas has suffered its first monthly decline in yields from both its domestic and international operations in more than two years, in a further sign of the impact of a fare war with Virgin Australia.
Nanjing Night Net

Australia’s largest airline today released its monthly traffic statistics, which showed that total yields for its domestic operations – including Jetstar and QantasLink – were up 4 per cent for the 11 months to May, compared with the same period last year. Yields for the group’s international business rose by 1.5 per cent over the same period.

But excluding Jetstar – which analysts today described as the ‘‘only shining light’’ – the group’s monthly traffic figures reveal the toll the battle with Virgin for passengers on domestic routes is having on the coredriver of Qantas’s earnings.

It is the first time since November 2009 that Qantas has suffered declines in yields from both its international and domestic operations, in yet another sign of why the airline last month warned that its full-year profit will fall as much as 91 per cent.

Despite the release of the weak traffic figures, shares in Qantas rose 3.5c to $1.11 in early afternoon trading, helped by a 1.1 per cent rally in the Australian sharemarket. Virgin was down 0.25c to 38.75c.

CBA Equities’ transport analyst, Matt Crowe, said today that he was surprised at the level of weakness in yields in May from Qantas’s domestic operations.

‘‘We have seen three or four months of weakening domestic airfare trends [from Qantas]. But we would have expected more of the weakness to be in the international side of the business,’’ he said.

While international fares have remained relatively flat in recent months, Qantas fares for domestic flights have been trending downwards, reflecting a large increase in capacity by airlines.

The weakness in Qantas’s domestic operations is a concern because it is the core of its earnings.

Macquarie Equities’ aviation analyst, Russell Shaw, said in a note to clients today that there was likely to be ‘‘limited upside’’ to Qantas’s share price because of risks to earnings in 2012-13 from a substantial increase in capacity from airlines in the domestic market over the next six months.

‘‘As capacity is ramped up more aggressively by Qantas over the next six months on both the mainline and domestic front, it is hard to see the yield growth trend heading anywhere else but further south,’’ he said.

This story Administrator ready to work first appeared on Nanjing Night Net.

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