Qantas cuts domestic capacity plans as election dents demand

[SYDNEY] Qantas Airways Ltd, Australia's largest carrier, cut its planned domestic capacity expansion for the second half of its financial year as the prospect of a federal election and a drop in consumer confidence weighed on demand.

Expected capacity additions in the six months to June 30 will be 0.5 per cent to one per cent compared with a 2 per cent forecast in February, the Sydney-based airline said in a statement to the stock exchange Monday. This month, the carrier removed three US services and redeployed planes to fly to Hong Kong and Singapore, it said.

Qantas's announcement underscores the delicate balance carriers need to achieve between profits and growth amid uncertain economic conditions.

Qantas's revenue per available seat kilometer declined in March, with weaker yield performance in domestic and international businesses, it said.

"In response to changed demand conditions, the Qantas Group has revised planned capacity additions in the final three months of financial year 2016," the company said.

Softness in demand "began to emerge over the peak Easter and school holiday period in late March and continued to be seen in forward bookings in April and May".

Australian consumer confidence dropped 4 per cent in April from a month earlier, data released by Westpac Banking Corp showed last week. Elections for both houses of the federal parliament could be held as early as July 2 if the Senate refuses to pass legislation aimed at curbing trade union influence, the government has said.

Qantas, which is benefiting from a A$2 billion (S$2.04 billion) turnaround, did not disclose the impact of the capacity cuts on its earnings. The airline is expected to post a pretax profit of A$1.8 billion for the year ending June 30, according to the mean estimate of eight analysts surveyed by Bloomberg, compared with A$975 million a year earlier.

BLOOMBERG