Qantas Price Wars as Losses Increase
12th Jun 2012
The flag carrier has slashed down domestic fares to keep clients and lure would-be clients in the hope of keeping its market share, reportedly at 65%. Competitions are becoming intense as budget airlines are becoming very aggressive in their effort to lure away customers from more established Qantas by offering lower ticket prices.
Qantas is planning to increase capacity between the country's largest cities, as Virgin Australia is luring corporate travelers by offering enhanced business-class services and Tiger Air is trying to attract leisure tourists.
For its second day in a row, Qantas lost 2.6% as it closed today to A$1.125. Its closest rival, Virgin Australia, dropped 1.2% to 41.5 cents.
Gareth Evans, the Chief Financial Officer of Qantas, said that an imbalance in the supply and demand would always have an adverse impact on yields.
Virgin Australia has reinvigorated its effort to challenge the flag carrier after the Abu Dhabi-based Etihad Airways acquired a substantial stake of its stocks recently. The UAE flag carrier is also hinting that it may increase its stake up to 10% given the right opportunity.
Meanwhile, Jetstar, Qantas' own budget airline is battling a formidable rival, Singapore-based Tiger Airways. Tiger Airways will open a second base in Australia next month, specifically in Sydney.
The decline in value of its stocks in the market was partly attributed to its earlier announcement that its profitability for the current fiscal year may be negative.
Amidst the competition, Qantas and Jetstar are still expecting to earn more than A$600 million this year from their domestic operations. However, both airlines suffer declining yields. Qantas is trying hard to protect its domestic market share.
The domestic market is Qantas' only hope of making profits. Thus, it is protecting its market share of almost 65% which is now threatened with the entry of budget and other full-service airlines.
Qantas faces yet another challenge which threatens its operations on international routes. The low demand of its European market is even more compounded by the competition put up by the Middle Eastern behemoths, Emirates and Etihad. Both Gulf carriers offer better connectivity to the continent than Qantas.
Along with many other international routes, most European routes (except London and Frankfurt) were discontinued as a result. Subsequently, Qantas split its domestic and international operations into separate units in the hope of making profits by 2014.