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Qantas pares domestic capacity growth; Perth and Brisbane remain key battlegrounds

Analysis

Qantas yesterday announced a further downward adjustment in planned domestic capacity growth and a corresponding reduction in capital expenditure for the next two years in response to weaker-than-expected demand and high fuel costs.

The Qantas Group is now targetting 5.5% domestic capacity growth for 2011/12 compared with the 8% planned previously. The Group is also reducing its fleet growth and now expects to take delivery of 34 aircraft in 2011/12 compared with 43 previously. Orders for 12 narrowbody jet aircraft will be cancelled or deferred, including three aircraft in the second half of 2010/11.

Perth and Brisbane are key battlegrounds

Qantas CEO, Alan Joyce, said the measures would "help maximise the Qantas Group's competitive position in the domestic market".

According to CAPA's analysis of forward schedule data from Innovata, Qantas Group will grow capacity on its top 10 domestic routes by an average of 3.3% between now and the start of the next scheduling season at the end of Oct-2011. Qantas is retrenching capacity on two of the 10 leading routes (Sydney-Melbourne and Melbourne Adelaide), but expanding aggressively on routes to Perth from Sydney (+20.9%) and Melbourne (+9.1%) where it faces rising competition from Virgin Australia. Brisbane is another key battleground and Qantas Group is expanding there from Sydney (+7.0%) and Melbourne (+7.8%).

Qantas Group's top 10 routes capacity (seats per week): 13-Jun-2011 vs 31-Oct-2011

Route
Qantas Jetstar Qantas Group % Change
13-Jun 31-Oct 13-Jun 31-Oct 13-Jun 31-Oct
SYD-MEL 45,984 44,868 8861 8773 54,845 53,641 -2.2%
BNE-SYD 26,424 27,561 3976 4956 30,400 32,517 7.0%
BNE-MEL 15,045 16,215 15,045 16,215 7.8%
SYD-CBR 12,438 12,490 3704 3717 16,142 16,207 0.4%
MEL-PER 11,521 12,281 2655 3186 14,176 15,467 9.1%
ADL-MEL 11,413 11,134 3540 3186 14,953 14,320 -4.2%
SYD-PER 11,272 13,184 1239 1947 12,511 15,131 20.9%
SYD-ADL 10,317 10,590 10,317 10,590 2.6%
MEL-CBR 9155 9518 9155 9518 4.0%
PER-KTA 7985 7985 7985 7985 0.0%
Subtotal 185,529 191,591 3.3%

Background Information

Qantas' share price has fallen by over 35% since recent highs in Oct-2010.

Qantas' share price over the past 12 months

Qantas' top 10 domestic routes (by seats per week): 13-Jun-2011 to 19-Jun-2011

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Qantas' top 10 domestic routes (by ASKs per week): 13-Jun-2011 to 19-Jun-2011

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