Business confidence up but demand stalls for Qantas
Qantas has warned that a rise in business confidence has failed to translate into an increase in demand for flights, forcing it to predict that returns from fares will fall in the first half.
Qantas shares fell as much as 5 per cent after the airline forecast group yields would drop by as much as 3 per cent in the first half of the new financial year. The forecast includes Jetstar.
"The magnitude of it is a shock," Commonwealth Bank analyst Matt Crowe said.
"The fact is that there is capacity going into the market at a time when demand is falling."
Qantas chief executive Alan Joyce blamed the expected decline on "weak underlying demand" and intense competition on both domestic and international routes".
"The domestic market is still absorbing capacity growth that has been double the long-run average," he told the annual meeting in Brisbane on Friday. "And this growth has come at the same time as weak underlying demand across the market - from the leisure to corporate segments."
Qantas remains locked in a battle with Virgin Australia for lucrative corporate travellers, while Jetstar and Tigerair Australia are upping their contest as the latter expands its network. Virgin bought a controlling stake in Tigerair earlier this year.
Qantas and Jetstar plan to boost domestic capacity by as much as 2.5 per cent in the first half, while Virgin is aiming for a rise of up to 4 per cent. The airlines make the bulk of their earnings on domestic routes.
Mr Joyce was hopeful the recent lift in business confidence in the wake of the federal election would lead to increased demand for travel, but conceded there would be a "lag effect".
Qantas chairman Leigh Clifford told shareholders Australia's economic position had been "relatively strong but there were elements of weakness. We have not yet seen the rise in business confidence following the election translate into any discernible increase in demand for domestic or international travel.
"At the leisure end of the market, consumer confidence remains low. The tough domestic market conditions that we faced in financial year 2013 are unlikely to ease in the short term."