Qantas, Virgin Australia End Capacity War, Surge Air Fares

16th May 2015

Qantas and Virgin Australia might have finally ended their year's long capacity war, to the delight of investors, but travelers are beginning to feel the brunt of this decision as airfares are starting to get bigger than last year.

Business class passengers are feeling the biggest brunt of this decision, as they now have to pay 26% more for the same ticket then they had to in 2014.

Even the cheapest tickets, the so-called "best discount tickets" have surged by as much as 16% in May, while the ticket prices for "restricted economy" grew 5% in May.

According to the Macquarie Equities' pricing database, ticket fares on the Sydney-Melbourne, Sydney-Canberra and Sydney-Perth routes are 8-38 per cent higher than they used to be in the same period in 2014 and that goes for all Australia airlines.

Qantas has managed to keep a tight rein on capacity growth in the first half of 2015, so now experts predict that neither Qantas, nor Virgin Australia will use larger planes or hike their flight frequencies by the end of the fiscal year.

Qantas' shares are now at their six-year highest, as they have grown 11 per cent this week. Chief executive Alan Joyce said last Tuesday to the investors that the carrier benefited from the cost-cutting program, lower fuel prices and the "most disciplined capacity market".

Qantas' fuel bill is expected to be A$685 million lower than last year, when it reached A$5.6 billion. With the Qantas' fuel costs in 2015/16 expected not to exceed A$4.8 billion, the investors have every reason to be happy.

Meanwhile, John Borghetti, Virgin Australia chief executive, said that fare discounts for business-class travelers are the most aggressive since "way before" the collapse of Ansett in 2001.

Qantas shares are currently trading for A$4.85, while Virgin's have dropped 1 per cent and are now at 0.61 cents per share.