Australia headed for domestic fare war
Executive Chairman, Peter Harbison, stated, “Virgin Blue is to be congratulated on an excellent set of numbers, achieved in a fairly benign operating environment. While the carrier forecasts net profit for the current full year will be more than 60% higher than in 2005/06, earnings will be more tested in 2007/08 and launch costs associated with long-haul operations in 2H08 will ensure profits stay under pressure in 2008/09”.
According to the CAPA report, published in its weekly Peanuts LCC report, the main test over the next year will be how Virgin Blue responds to:
“A positive for Virgin Blue is that is has been able to restrict its cost increase (in the latest half, excluding fuel), to 1.5%. But, from mid-07, a capacity battle is looming – with inevitable pricing competition. Just as Virgin Blue increases its capacity by 10% and Tiger adds a further 3% to the total (with a disproportionate impact if focused on a handful of routes), Qantas and Jetstar will be obliged to add seats to retain market share – either by delaying retirements, bringing international capacity onshore or leasing in new equipment”, said Mr Harbison.
Mr Harbison also described Virgin Blue’s new profit share arrangement for its staff, as a a “sensible move” ahead of the entry of a new competitor, when staff productivity and retention will be crucial.
CAPA will shortly release its highly-anticipated Aviation Outlook report for 2007. For further information, please visit centreforaviation.com