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Qantas brought back down to earth

Travel

Qantas has suffered a major share sell-off in the wake of the airline’s decision to axe plans to add flights.

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Qantas shares, which had quadrupled in value since December 2013 on the airline’s return to profitability, dropped more than 10 per cent on Monday after the company cited lower-than-expected demand from consumers wary about the state of the economy.

The airline had been planning to increase local seat capacity in April, May and June.

“Some softness in demand, related to the upcoming federal election and 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 in April and May,” Qantas said in a statement.

Qantas also cut three Sydney-Los Angeles flights from its weekly schedule, with the planes redirected to the more profitable Singapore and Hong Kong routes.

The stronger Australian dollar has led to some holidaymakers seeking cheaper destinations such as Bali and Phuket, although a Qantas spokesman said demand from China remained very strong.

Qantas now expects domestic capacity growth of 0.5-1.0 per cent for the six months to June 30, compared to its previous guidance of 2.0 per cent.

Unnerved investors pushed Qantas shares down as much as 14.29 per cent to $3.48 in early trade on the Australian stock market.

Qantas shares were down 44 cents, or 10.84 per cent, at $3.62.

A spokeswoman for Virgin Australia declined to comment on its capacity plans, noting an update would be issued in the group’s third-quarter update in May.

As a result of Qantas’ capacity cut, total industry seat capacity growth between Australia and the US will be 6 per cent in the second half ending June 30, compared to the expected nine per cent growth.

Qantas’s total capacity is still expected to rise by 5 to 6 per cent in the second half, due partly to Jetstar’s international B787 Dreamliner.

Qantas, which in February launched a $500 million buyback on the back of a record first half-profit of $688 million, will report its annual results on August 24.

 

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