Rising competition is starting to bite into earnings at the leading Australasian airlines. Qantas reported domestic yields excluding exchange (covering Qantas, QantasLink and Jetstar) for the seven months to 31-Jan-08 rose 1.2% year-on-year. The previous time Qantas released traffic data, for the five months to 30-Nov-07, domestic yields had increased 3.5%, indicating 4.5 average reductions in yield in the intervening two months.
The situation in New Zealand is similar. Air New Zealand reports short-haul yields (dominated by the domestic and Tasman markets) had risen 1.8% in the seven months to 31-Jan-08. But Feb-08 data showed year-to-date short-haul yields had risen 1.3%, translating into a full 4% reduction in the month of Feb-08.
In the domestic market, passenger numbers grew 4.7% in Feb-08, around half the level of the 9.2% capacity increase, as Air New Zealand retaliates against Pacific Blue’s entry into the domestic market. Short-haul passenger load factors decreased 1.2 percentage points to 76.5%, including a 2.0 percentage points fall in domestic load factor to 76.3%. In combination with falling yields, this is an ominous sign for future earnings.
Air New Zealand’s long-haul yields fell by around 2% in Feb-08, which is also of concern to the carrier, although long-haul load factors remained strong.
Qantas’ international yield held up well in Dec-07/Jan-08, rising approximately 8.5% in both months, to take the year-to date (seven months to 31-Jan-08) yield increase to 6.5%. Feb-08 data will be watched closely to see whether Qantas feels the headwinds being experienced by Air New Zealand.