Qantas Cuts Back on Planned Domestic Flights Due to Lowered Demand

19th Apr 2016

The upcoming elections in Australia are forcing its biggest carrier Qantas and its low-cost spin-off Jetstar to alter their plans regarding flights on domestic routes and to scale down on them due to reduced demand from Australians.

Qantas shares were at $3.58 today at 12:30 PM local time, down 11.8 per cent. At midday, they were even lower at $3.49, down 14 per cent.

In an update to stock exchange, the Australian carrier said:

"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."

Because there are less passengers, Qantas has decided to revise its previous plans to boost seat capacity on its flights for April and the two months after it. The Flying Kangaroo was planning to increase domestic capacity by around 2 per cent, but it is now forced to do so by between 0.5 and 1 per cent during April, May and June.

Qantas also added that by cutting back on capacity growth, it will be better able to defend its revenue per available seat kilometer (RASK). Qantas' RASK for the current financial year is down compared to the same period last year.

On Monday, Deutsche Bank said domestic fares were exhibiting signs of softness because of decreased customer demand in the next three months. However, airlines will still be able to make profit thanks to lower fuel prices.

As for Qantas, it had 8 per cent less domestic flights booked this month when compared to April 2015 and 15 per cent less booked flights for May 2016 than for May 2015.

Qantas' biggest competitor Virgin Australia didn't see much growth for April and May, at least in Economy Class, as its domestic and international fares grew less than for the same period year prior. On the other hand, Virgin Australia's Business Class sales did grow.

According to Cameron McDonald, analyst at Deutsche Bank, this highlighted:

"The weakness in the underlying domestic demand environment and the company's shift away from the resources sector."