Virgin’s toll on Qantas shows

Tails of two rivals point to weaker figures for Qantas.QANTAS has laid bare the impact of its battle with Virgin Australia after recording its first monthly decline in yields from both its domestic and international operations in more than two years.
Nanjing Night Net

The group’s latest traffic statistics show that total yields for its domestic operations – including Jetstar and QantasLink – were up 4 per cent for the 11 months to May 31, compared with the same period last year. Yields for the international operations rose 1.5 per cent over the same period.

But excluding Jetstar – which analysts described as the ”only shining light” – the group’s traffic figures for May reveal the toll that the battle with Virgin is taking on the core driver of Qantas’ earnings.

Qantas suffered monthly declines in yields from its international and domestic operations – of 0.8 per cent and 1.3 per cent respectively – for the first time since November 2009, in yet another sign of why the airline warned last month that its profit would fall as much as 91 per cent for the year to June 30.

The latest figures come before Qantas, Jetstar and Virgin began to significantly increase flight frequencies and use bigger planes on domestic routes, in a worrying sign for them all that their earnings will also be dented significantly in the new financial year.

CBA Equities transport analyst Matt Crowe said he was surprised at the weakness in yields from Qantas’ domestic operations in May.

”We have seen three or four months of weakening domestic air-fare 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 been relatively flat in recent months, those for Qantas’ domestic flights have been trending down, reflecting a large increase in capacity by airlines.

Macquarie Equities aviation analyst Russell Shaw said in a note to clients that there was likely to be ”limited upside” to Qantas’ share price because of risks to earnings in 2012-13 from a substantial increase in capacity by airlines in the domestic market.

”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.

Despite the release of the weak traffic figures, Qantas shares rose 2.5¢ to $1.10 yesterday, helped by a 1 per cent rally on the sharemarket. Virgin fell 0.5¢ to 38.5¢.

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