Seats glut bites into airlines' bottom line

AUSTRALIA'S domestic aviation market is awash with flights, benefiting passengers rather than airlines, according to the head of Qantas' local business.

''There's a lot of capacity sloshing round the Australian marketplace overall,'' Lyell Strambi, chief executive of Qantas Domestic, said at a media briefing at Sydney airport on Sunday. ''Ultimately the winners are the customers.''

Flight capacity in the domestic market in the December half is running about 12 per cent above last year's level, whittling profitability for carriers aiming to match the supply of seats to demand, says Russell Shaw, an analyst at Macquarie Group. Business-class ticket prices had fallen 40 per cent in the past year to two-decade lows as Virgin Australia Holdings stepped up competition with Qantas.

There had been ''some adjustments in capacity'' in the past few months without any significant reduction in growth, John Borghetti, Virgin's chief executive officer, said last week. ''Competition is certainly very aggressive now and will always be aggressive,'' he said.

The price war has helped drive Qantas' share price to near-historic lows, making the company vulnerable to renewed attempts by a group of investors, including former chief executive Geoff Dixon and adman John Singleton, to secure a cornerstone stake of as much as 20 per cent in the airline. It is believed they have already taken a stake of between 1 per cent and 2 per cent.

Qantas announced on Sunday it would switch all services between Perth and Sydney and Melbourne to Airbus A330s from May.


The bulk of additional seats that Virgin is adding come from switching to wide-body jets such as the A330 on routes between the east and west coasts, Mr Borghetti said.

Mr Strambi said Qantas would move its replaced Boeing 767s to the busier east-coast network.

Virgin plans to buy a controlling stake in Tiger Airways Holdings' local unit and to take over Skywest Airlines in a deal that would raise its share of the Australian domestic market to about 35 per cent from 30 per cent at the moment.