Yield downturn confirms Qantas pain

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 showed 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 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 revealed the toll the battle with Virgin was having on the core driver of Qantas’s earnings.

The group suffered monthly declines in yields from both its international and domestic operations – of 0.8 per cent and 1.3 per cent respectively – for the first time since November 2009, in another sign of why the airline warned last month its profit would fall as much as 91 per cent for 2011-12.

The latest figures come before Qantas, Jetstar and Virgin begin to significantly increase flight frequencies and use bigger planes on domestic routes, in a worrying sign for them that their earnings will also be dented significantly in 2012-13.

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

”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, those for Qantas’s domestic flights have been declining, reflecting a large increase in capacity by airlines.

The Macquarie Equities aviation analyst Russell Shaw said in a note to clients 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.

”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, shares in Qantas 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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