Qantas (QAN) shares plunged yesterday after the airline and its Jetstar subsidiary annouced they were cutting back planned flights on domestic routes in response to reduced demand for seats from Australian consumers.
The airline blamed the looming election campaign for making travellers wary about flying.
Qantas shares tumbled 10.8% to be at $3.62 at the close.
The airline said it had revised plans to increase seat capacity in April, May and June because customers were flying less.
“Some softness in demand, related to the upcoming federal election and a 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,” Qantas said in an update to the ASX yesterday morning.
Qantas said it would trim the increase in its domestic capacity to between 0.5% and 1%, instead of about 2% as originally planned – a year-on-year drop – and added that it could reduce it even more if travel fell further.
QAN 1Y – Qantas shares dive as capacity cut
Cutting capacity growth will allow Qantas to defend its "revenue-per-available-seat kilometre (RASK)", an important measure of an airline’s efficiency and profitability, Qantas said.
Several years ago Qantas would have cut fares and soldiered on with its planned capacity increase to defend its market share. Now it’s a different story as the airlines think more about the bottom line rather than market share.
It is a far more rational decision than what we have seen from Qantas for years – not since the days of when James Strong was CEO.
The airline said that total Qantas group RASK for the financial year to date was lower compared with the first nine months of 2014-15, with lower international results negating strengthened domestic results, while total revenue per seat was up 0.8% on last year.
Combined capacity would increase by 5% to 6% in the second half, driven by growth from Jetstar’s international B787 Dreamliner and increased use of Qantas International’s fleet.
Virgin Australia shares fell by just over 1% to 35 cents. That airline is in the midst of a restructuring, possible management changes, and a change in major shareholders with Air NZ looking to exit its stake.
Qantas’ update yesterday will make Air NZ’s task that much tougher to achieve.
