August 28, 2012
Credit: Photo: Virgin Australia
Virgin Australia, mirroring rival Qantas, this year will increase domestic capacity, particularly on hotly contested Australian transcontinental routes.
During its annual earnings report, Virgin Australia revealed it will increase capacity 8-9% in the six months through Dec. 31—its fiscal first half—with most of this growth attributable to the transcontinental routes.
The new estimate comes just one week after Qantas announced its own intention to increase domestic capacity 9-11% in the fiscal year through June 30, 2013.
However, the two carriers differ in their approach to capacity growth. While Qantas is adding seats to maintain a market share goal, Virgin Australia CEO John Borghetti says he will only grow where it is profitable to do so.
“The right capacity share is one that gets the best [financial] results” and matches the airline’s strategy, says Borghetti. The airline will not be “forgoing pricing for the benefit of capacity.”
In contrast, Qantas executives admit their own capacity growth will likely cause yields to weaken. They believe, however, that a 65% domestic capacity market share is the right level to maximize profits, so when competitors grow they must do so to maintain that share.
About 80% of Virgin Australia’s domestic growth is attributed to newly delivered Airbus A330-200s, which are replacing Boeing 737-800s on transcontinental routes. Borghetti notes that having widebody aircraft on these important routes is necessary to “have a competitive product” in this market.
Borghetti says industry capacity on the busy Melbourne-Sydney route on Australia’s East Coast will see a 24% increase in the first half of the 2012/2013 fiscal year, but Virgin Australia will only account for three percentage points of this growth.