The Qantas-Virgin Australia capacity/fare war is not over: WA decreases offset east coast growth

When Qantas Group informed the market that it would not add domestic capacity in the first quarter of FY2015 commencing 01-Jul-2014, the perceived implication was that the capacity and fare war Qantas had fought with Virgin Australia was over. Virgin's "Game Change Programme" re-positioned the carrier as a full-service airline with business class offering, bringing premium competition to the Australian market for the first time since Ansett's 2001 collapse. Virgin was bullish on growth opportunities while Qantas abided by its strategy calling for 65% marketshare. In borad terms, when Virgin added a flight, Qantas added two.

But the white flag has not been raised. Qantas Group's 1QFY2015 domestic capacity will be flat, but this is comprised of capacity decreases in the Western Australia market (a 10% reduction in intra-WA) and capacity increases in the east coast, mainly around Queensland. The WA market already was so over-capacity that there were never going to be winners. Pulling back capacity is not so much a strategic decision as delayed common sense. More reductions may still be needed. The Qantas-Virgin fight appears set to continue in the country's east.