Qantas tanks in Australia

Qantas cuts back flights in face of falling demand and confidence

Qantas' domestic capacity growth will be up to 1.5 per cent lower. Photo: Glenn Hunt

the Age,

18 April, 2016

Qantas shares have plunged after the airline and its low-cost spin-off, Jetstar, said it was cutting back planned flights on domestic routes in response to reduced demand from Australians worried about the economy and the upcoming election. 

Qantas shares tumbled 14 per cent to be at $3.49 at midday, AEST, before recovering slightly to $3.58 at 12.30pm - down 11.8 per cent. 

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 stock exchange.

Qantas said it would boost domestic capacity between 0.5 per cent and 1 per cent during that period, instead of about 2 per cent as originally planned - a year-on-year drop - and that it could reduce it even more.

Cutting capacity growth would defend Qantas' revenue-per-available-seat kilometre (RASK), an important measure of an airline's efficiency and profitability, Qantas said.

Qantas shares dipped on news it will be cutting back flights. Photo: Bloomberg

Total Qantas group RASK for the financial year to date was lower compared with the year-earlier period, with lower international results negating strengthened domestic results, while total revenue per seat edged up 0.8 per cent on last year.

Combined capacity would increase by 5 per cent to 6 per cent in the second half, driven by growth from Jetstar's international B787 Dreamliner and increased use of Qantas International's fleet.

Deutsche Bank said on Monday that domestic airfares were showing signs of softness due to reduced demand over the next three months, but airlines' earnings were being protected by lower fuel prices.

Qantas said it had revised plans to increase seat capacity in April, May and June because customers were flying less. Photo: Supplied

Qantas economy domestic flights booked for April had fallen about 8 per cent and flights for May had fallen about 15 per cent compared to last year, Deutsche Bank said in a note to clients, which came after nine months of strong fare growth.

Virgin Australia bucked the growth trend over that period, especially in economy class, with domestic and international fares growing at less than the rate of general inflation.

Virgin's business class fares, however, have been growing at more than inflation, which Deutsche Bank analyst Cameron McDonald said likely highlighted the "weakness in the underlying domestic demand environment and the company's shift away from the resources sector."