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Qantas coy on margin squeeze

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August 10, 2019 by admin

QANTAS has conceded that returns from domestic fares fell in July amid intense competition from Virgin Australia but has broken with normal practice by not putting a figure on the size of the decline.
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The prospect of a fare war comes as the Emirates chief executive, Tim Clark, visits Sydney this week, further fuelling speculation the Middle Eastern airline will sign an alliance with Qantas covering routes between Australia and Europe.

Critics say Qantas is acting from a position of weakness in pursuing a code-share deal, and risks handing passengers to Emirates without significant benefits.

Releasing traffic statistics yesterday, Qantas said yields from domestic flights were lower in July than the same month last year due to increased capacity from airlines in the domestic market.

But the notable absence of a figure on the movement in yields – or returns from fares – disappointed analysts, who said it would weaken investor confidence in the airline’s outlook.

For the past decade Qantas has released yields for its domestic and international operations.

”It is disappointing because you can’t see the trends on a monthly basis. Most companies are trying to increase transparency but this decision takes them in the opposite direction,” an analyst said.

Qantas said yields from its international operations had improved in July – without giving an exact figure – due to it ceasing to fly on loss-making routes. The airline ditched the Singapore-Mumbai and Auckland-Los Angeles routes in May, just months after it dropped Hong Kong-London and Bangkok-London.

It has previously warned that a large increase in capacity in the domestic market – the core of the airline’s earnings – will put pressure on yields in the first half of the new financial year.

Qantas and its budget offshoot Jetstar will increase capacity on domestic routes by as much as 11 per cent in the first half of 2012-13. Virgin plans to raise it as much as 9 per cent.

”It will not be good for profits if they can’t counteract that yield pressure with cost [reductions] or putting on profitable routes elsewhere,” said Will Seddon, a portfolio manager at White Funds Management.

Tiger Airways is also increasing the number of flights to the number it was operating before its six-week grounding last year. It will begin two daily return services between Melbourne and Adelaide in November.

A Qantas spokesman said the decision not to include figures on yields would bring it into line with domestic and international competitors.

Qantas shares fell 3¢ to $1.14 yesterday. Virgin closed up 2.5¢ at 45¢.

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