Qantas v Virgin: New price war on the horizon

Chris Ashton

Just when it seemed the skies couldn't get any cheaper, a new price war is looming between Qantas and Virgin Australia - Australia's two largest airline industry players.

Days after Qantas announced a $244 million full-year loss, Virgin Australia revealed a profit of $22.8 million and detailed plans to expand its domestic market capacity by 9 percent over six months.

After finally returning to profitability, Virgin Australia said yesterday it wants to put more planes in the sky, focusing on key routes such as Sydney to Melbourne and Sydney to Perth.

Virgin Australia CEO John Borghetti said "I have been around a long time ... 40 years, and I haven't seen discounting to this level since way before Ansett stopped flying."

"There is a lot of aggressive competition but frankly we were expecting it and we will be as competitive as we can be to ensure we hold our position. We do have a cost advantage on our side."

Mr Borghetti believed attracting corporate and government travellers had been key to its success, with the segment now making up 20 per cent of its domestic revenue.

"At the beginning of Financial Year 2011 we announced a three-year strategy, the Game Change Program, to reposition the business for a more stable financial future. We are now almost a year ahead of schedule on the strategy, having achieved the majority of our goals".

Rising fuel costs and industrial action are believed to be the main reasons behind the Qantas Group's disappointing financial result, but Qantas CEO Alan Joyce is optimistic about the future.

Before interest and tax Qantas International made a loss of approx $450 million, but Qantas Domestic and Jetstar Domestic combined delivered a profit of more than $600 million by the same measure.

In his statement last week, Mr Joyce said "From October this year, we will fast-track the upgrade of our domestic Boeing 767 aircraft with fresh interiors. Sixteen of our 22 domestic 767s will be upgraded, with the first to be completed this October."

"With lower capital requirements and substantial liquidity, we are now turning our attention towards debt reduction to strengthen the balance sheet."

Whether these changes are enough to claw back to profitability is yet to be seen. Either way, Australian travellers look set to be the real winners.

Who will you fly with this year?

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