Qantas hit as airfares war takes its toll

The Australian airline saw its earnings dip amid a slew of ticket cuts as competition hots up for long-haul flights and rivals' capacity grows.

A Qantas Boeing 747 in the skies above Melbourne. The Australian carrier has been hit by competition. William West / AFP

Qantas, a codeshare partner of Emirates, blamed a price war for a drop in earnings amid plans by the Australian carrier to roll out its premium economy seats on 787-9 Dreamliners and free inflight Wi-Fi to woo passengers.

On Thursday, it reported a group underlying profit before tax of A$852 million (Dh2.4 billion), down 7.5 per cent year-on-year, for the six months ended December.

The airline’s shares closed 5.4 per cent higher at A$3.74 in Sydney on Thursday.

Underlying earnings before interest and taxes (Ebit) from international flights dropped 8.9 per cent to A$208m.

Qantas blamed the drop on a growth in the capacity of its international competitors by 11 per cent, forcing its seat factor (a measure of capacity utilisation) down to 81.3 per cent from 83.3 per cent during the same period a year earlier.

The underlying Ebit in the domestic segment touched A$317m, a drop of A$16m.

The fare woes are expected to continue this year.

This week, Emirates launched cheaper long-haul fares to Perth. Flights to the Australian city from Manchester cost £675 (Dh3,095) in economy. The prices are valid for bookings before March 6 and travel between March 1 to 31, and May 1 to June 30.

Emirates has a codeshare deal on 58 Australian and New Zealand destinations across the Qantas network, but it competes with Qantas on other long-haul routes such as from London to Perth and Sydney to Bangkok.

Emirates is also offering cheaper return airfares between the two cities for A$729 for bookings before February 28 and travel between December 1 and December 7.

“By working together, Qantas retires competitive risk and benefits greatly from Emirates’ far bigger network – something Qantas doesn’t offer its customers today,” said Saj Ahmad, an analyst at StrategicAero Research in London.

Low oil prices have led to a decline in airline costs and as a result they can afford to slash fares to attract passengers, he said. The trend of low airfares is expected to continue for the next 18 months.

The airlines, especially Middle East carriers, added capacity last year to tap more passengers, and are expected to continue to do so this year.

“Cheaper oil has led to a strong capacity growth on international routes – pushing down fares and impacting all major airlines, [and] Qantas International isn’t immune from that impact,” said Alan Joyce, Qantas Airways’ group chief executive.

During the next six months to June 30, international markets are expected to remain “challenging – but we expect the revenue trend that we saw in the first half to moderate”, he added.

To attract customers, Qantas said it would launch free Wi-Fi on its domestic flights from next month that is “10 times faster than the typical inflight Wi-Fi”. It will be fast enough to stream Netflix and Foxtel, shop online and check emails, it added.

Emirates charges for some onboard data packages available on all its A380s and most Boeing 777s. Free 10MB of data is provided, “that’s enough to search, send emails and update Facebook”, according to Emirates. Beyond that passengers need to pay.

Qantas also unveiled its premium economy class onboard its 787-9 Dreamliner that will fly long-haul routes such as Perth to London. The seats will feature more space than an economy class seat and a recliner.

The first of its eight 787-9 Dreamliners will be delivered in October and will make its first flight in December between Melbourne and Los Angeles. Its direct flights between Perth and London – the first direct link between Australia and Europe – will start in March next year.

Qantas introduced premium economy seats in 2008 on its A380 and later on its Boeing 747s.

During the current half, Qantas’ international capacity is expected to increase by about 3 per cent with an eye on its growing South East Asian routes.

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