Qantas puts brakes on domestic growth in response to market conditions

written by australianaviation.com.au | April 18, 2016
A Qantas Boeing 737-800 and Airbus A380 at Sydney Airport. (Rob Finlayson)
A Qantas Boeing 737-800 and Airbus A380 at Sydney Airport. (Rob Finlayson)

Qantas’s shares have tumbled sharply after the airline group announced putting a brake on domestic growth in response to weaker-than-expected demand.

On the domestic front, Qantas said it would cut capacity in the three months to June 30 2016, compared with the prior corresponding period, in response to the airline posting negative revenue per available seat kilometre (RASK – an industry measure of demand) in March and weaker-than-expected traffic over the Easter and school holiday period in most Australian states.

As a result, previously forecast capacity growth for the combined Qantas/Jetstar domestic network of about two per cent in the second half of 2015/16 has been revised downwards to growth of between half a per cent and one per cent, Qantas said.

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“In response to changed demand conditions, the Qantas Group has revised planned capacity additions in the final three months of financial year 2016,” Qantas said in its monthly traffic and capacity figures for March released on Monday.

“Some softness in demand, related to the upcoming federal election and recent drop in consumer confidence in Australia, began to emerge over the peak Easter and school holiday period in late March and continued to be seen in forward bookings in April and May.

“Traffic over the peak Easter and school holiday period from late March fell below expectations, compounded by a disconnect in the timing of Easter and school holidays in most Australian states.

The March traffic figures showed Qantas’s domestic network’s available seat kilometres (ASK) were flat in the month, while passenger numbers rose 1.2 per cent.

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Qantas shares closed down 44 cents, or 10.8 per cent, at $3.62 on the Australian Securities Exchange. This compared with a 0.4 per cent decline on the broader market. Virgin Australia shares ended half a cent weaker at 35.5 cents.

The Flying Kangaroo’s international services suffered a 2.9 percentage point decline in load factors to 78.6 per cent in March, with passenger demand not able to keep up with the 8.2 percentage point boost to ASKs.

On the international front, Qantas noted on Monday three Sydney-Los Angeles rotations – the evening departure QF17 from Sydney and reciprocal QF18 from LA – would be cut from April 26. The reduction to a daily service, from 10 times a week currently, was first announced in November 2015.

The aircraft will be re-deployed to Singapore and Hong Kong in response to demand in those markets. Qantas said in March it would offer 13 or 14 flights a week on the Sydney-Hong Kong route during the “Northern Summer” scheduling season, up from 11 flights a week currently, with the expanded frequency beginning on April 4 and running until to October.

Further, Qantas planned to lift its Melbourne-Singapore offering to 10 times weekly from the end of April, while some Melbourne-Hong Kong flights are being upgauged to Boeing 747-400s, from Airbus A330s.

The trans-Pacific market has been particularly active in recent times, with the arrival of American Airlines on the Australia-US route, in cooperation with Qantas, as well as Air New Zealand starting Auckland-Houston services, in December. Qantas also resumed flights to San Francisco just before Christmas.

And there is more new capacity to come with American launching Auckland-Los Angeles and United returning to NZ with Auckland-San Francisco services in June and July, respectively.

As a result, airlines have been offering heavy discounts to fill their flights – travel websites have reported US-New Zealand itineraries, including some via Australia, were being offered for as low as $US225 return in April.

[FARE GONE] Qantas – $225: Los Angeles / San Francisco – Auckland, New Zealand. Roundtrip, including all Taxes

There have also been sales for US-Australia flights for less than $US400.

https://onemileatatime.boardingarea.com/2016/04/10/cheap-flights-australia/

And from this side of the Pacific, there are sale fares currently in the market for Australia to the US – either one-stop of nonstop – for less than $A1000 return.

Qantas said these changes would result in total market seat capacity growth between Australia and the US of six per cent, compared with a projected nine per cent growth prior to these changes being made.

At Jetstar, domestic ASKs grew 9.6 per cent, while there was a 9.3 per cent increase in passengers carried. However, the low-cost carrier also found things a little more difficult on the international front, with load factors easing 1.9 percentage points to 78.1 per cent as ASK grew 17.2 per cent compared with revenue passenger kilometres (RPK) increasing 14.4 per cent.

“Jetstar International RASK was negative as it continued to grow into recent capacity additions and due to softer demand on services to Honolulu,” Qantas said.

“Qantas International RASK decreased, reflecting more competitive pricing on routes including the UK and US, while new services to Asia continued to perform in line with expectations.”

Jetstar is reducing its presence in Hawaii from late October, when it exits Brisbane-Honolulu, leaving Hawaiian Airlines as the only operator on the route.

13 Comments

  • J Lewthwaite

    says:

    QANTAS should look at their CABIN CREW, recent travel in BUSINESS CLASS was of a very poor Standard.
    My wife and I were missed when the Drinks and Meal orders were taken.
    Travelling Sydney – Shanghai Qantas Business, Poor Service.
    Shanghai – Hong Kong CATHAY PACIFIC, Service Excellent!
    Hong Kong -Sydney FRIDAY 15th April, at down town check in,OOP’s No Seats for you, come back tomorrow. This fight QF 128 was booked in December. Too bad,
    HONG KONG-Sydney QF-128 same old story in Business Class. very poor attitude, rude letter to Qantas following. We used to be “Platinum QFF” not any more other Airlines are much Better.

    No wonder QANTAS is losing BUMS on SEATS

  • Christopher Campbell

    says:

    J Lewthwaite

    More people are travelling on Qantas than they have been for a long long time. They are simply reducing capacity.

  • Martin

    says:

    Seems like sensible decisions by Qantas and so there might be some other reason for the stock price falling in value.

  • John

    says:

    it’s strange, the media keep talking about how weak the AUD$ is against the USD$ BUT, just booked our January ski holiday to Colorado & it’s cheaper by far, than the same holiday booked for the past 5 years.

    The wholesaler said it was due to competition in the marketplace from Vail Resorts who now own Perisher & Perisher season passes allow skiing at all Vail Resorts(there are a lot of them, not just in Colorado). The main reason the holiday is cheaper, is lift tickets for 13 out of 17 days are only US$260 (that’s US$20/day or less than AUD$27/day for an adult, with up to 4 kids free & lift queue priority. The lift prices apply all 2016-2017 ski season.

  • Paul Rodgers

    says:

    J Lewthwaite,

    I for one would not accept a downtown check in agent telling me there were no seats for me on my booked flight!
    Did you ask to speak to someone from Qantas at Hong Kong Airport?

  • ian

    says:

    Qantas needs 787’s now, not later.

  • Pablos C

    says:

    Increasing competition and the rise of asian airlines will always decrease profits as people are money conscious and wont think of the consequences of their choices…. all to save $100 or so…. its crazy, but humans are always selfish and short sighted;
    The question is is airline management like that too?

  • Chris

    says:

    People who complain about service on Qantas clearly have never flown a US-flag carrier on a routine basis. Don’t delude yourself, most US carriers are pure crap compared to their foreign flag counterparts operating on the same route.

  • Chris Grealy

    says:

    Our government has been talking down our economy for years. They say people need to stop spending money on luxuries – like air travel, for example.
    Any further questions?

  • Rusty

    says:

    Yet another article talking about QF re-deploying capacity to Asian ports. Where is the increased capacity and options that were promised a few years back after their tie-up with Emirates ??
    QF offers no daylight Asia-Australia services (all are red-eyes) and as most who have done it more than once know, it’s a hell trip down in the cheap seats. There appears to be a Jetstar flight, SIN-BNE, but if you want to go on somewhere else you’re stuck because it gets in to Brissie too late for any connections.
    SQ offers 4 SYD-SIN flights daily (5 on some days) with either A380 or B777 and from my observations, all have high pax. Two of these do daylight returns to SYD. SQ does similar for MEL and BNE.
    On the other hand, QF has 2 x A330 flights and both of them have the infamous over-night ride home. How can SQ fill 4-5 big planes with dep/arr options and QF only 2 ??
    C’mon QF – bring back a daylight flight …… at least one, please ??!! Bite the bullet and let a plane or 2 overnight in SIN and other Asian ports and give us the services we were promised..

  • Paul Rodgers

    says:

    Rusty,

    Singapore Airlines, like Cathay Pacific can run 4-5 daily flights because they feed into their hubs.
    Qantas cant match this, nor can any other carrier in same situation!

    Eg compare how many flights BA run London Dubai compared to Emirates!

  • Rick

    says:

    Capacity versus Demand is always an interesting question.
    I too believe that you get what you pay for. For me international travel wherever possible will be with QF only as I want to ensure I get to my destination safely. Customer service has always been great but I guess I have a personable nature and often have a friendly chat with all crew. Nothing is ever too much trouble. A friendly smile and manners go a long way. How many passengers are on board and feel as if it is owed to them rather than appreciate the service.? QF needs to do what it needs to do to be a competitor in this ever challenging marke.t. My only wish is to see the flying kangaroo depart from Adelaide with a direct international destination..

  • franz chong

    says:

    EVEN Singapore Airlines has a daytime between Singapore and Adelaide on a seasonal basis.I have not been on one personally but for those of you who don’t feel the need to spend a last day doing some sightseeing and shopping before the just before midnight departure home this is the service for you.You leave in the morning and get back the same evening thanks to the time difference and allowing for clearing of customs/immigration will be home and in your own bed the same night.Prior to SQ offering daylight flights SIN/ADL the only way you could do such a thing and this was a long time ago now is BA via Perth and getting the last Qantas of the day onwards which was in the nineties.

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