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Qantas retreats from its 65% ‘line in the sand’ on capacity

May 23, 2014 Aviation, Headline News No Comments Email Email

egtmedia59The ferocious capacity war between Australia’s two big domestic carriers may finally be over. Qantas appears to be retreating from its dogged defence of 65% domestic market share, the “line in the sand” which has dominated discussion of the topic for years.

The airline’s domestic operation (comprising Qantas Domestic, QantasLink and Jetstar Domestic) will add no capacity from July to September this year – a period which makes up the first quarter of financial year 2015.

The Qantas share of the domestic market has in any case dropped below 65% in recent months.

An analysis in The Australian quotes Qantas chief executive Alan Joyce as saying: Night Owl - Article Banner

“Our overall market share is around 63% in the domestic market – it varies up and down…I think people have misinterpreted where we were with the 65% market share.”

In March this year, however, addressing the Australia-Israel Chamber of Commerce, Joyce confirmed that Qantas had to maintain its self-imposed target of a 65% share of the Australian domestic market.

And last year, Joyce told the CAPA Australia Pacific Aviation Summit in Sydneythat Qantas believed that “the profit-optimising 65% position is very important”.

The 65% “line in the sand” strategy, and the term, were in fact created by Joyce’s predecessor Geoff Dixon, who said in 2004: “This is our line in the sand and we will provide the capacity and infrastructure to defend it…” and then in 2007: “Our strategy is to keep 65% of the [domestic] market and we will.”

Joyce has stuck with the line-in-the-sand mantra and critics are increasingly accusing him (mistakenly) of having created the idea. He now seems to be backing away from it.

In latest monthly traffic and capacity figures, for April 2014, Qantas Group passenger numbers fell by 1.5% from the previous year. Group capacity (available seat kilometres) increased by 2% and demand (revenue passenger kilometres) increased by 0.4%, resulting in a revenue seat factor of 76.4% which was 1.2% lower than the previous year.

In response to changing conditions in the domestic market, the Qantas Group says it has revised planned capacity additions in the first three months of financial year 2015.

Total Qantas domestic capacity growth will “be zero” in each of the first three months of financial year 2015, compared to the prior corresponding period, the airline has confirmed. Qantas will continue to monitor and adjust capacity according to changes in market conditions (including demand, supply and customer requirements) during the period.

Virgin Australia has been steadily pressuring Qantas in a continuing price war for domestic low-cost customers, while also seeking to boost its share of the high-yield corporate and government market, dominated for years by Qantas.

Earlier this year, Qantas reported a AUD 252 million loss. It is shedding 5000 jobs in a bid to turn itself around.

Written by : Peter Needham

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