Virgin Australia to join Qantas in cutting back on plane seats

VIRGIN Australia will take the knife to seats on regional routes as it struggles to turn a profit in a “challenging operating environment”.

Happier times. John Borghetti CEO from Virgin Australia unveiling new standard in domestic business class flying on board A330s. Picture: Adam Taylor

VIRGIN Australia will join Qantas in cutting capacity on domestic routes in a move certain to drive up airfares.

Just over five per cent of available seats will be trimmed from Virgin Australia’s schedule in coming months, with regional routes set to be the hardest hit.

The Virgin decision came after a disappointing third quarter result that saw the share price plunge to a 12-month low of 33 cents, down 5.7 per cent.

CEO John Borghetti blamed the $18.6 million loss on fleet restructuring initiatives and a “challenging operating environment”.

“This environment has been impacted by weak consumer demand and sentiment, uncertainty around the federal election and the resources sector downturn,” said Mr Borghetti.

“As a consequence we will reduce Group capacity in the fourth quarter by 5.1 per cent, with domestic reductions focused on regional routes.”

Brisbane-Emerald would be axed altogether and it was likely smaller aircraft would be used on some other routes currently serviced by 737-800s, within Queensland and Western Australia.

Despite the setback, Virgin Australia remained on track for a full year profit of between $30 and $60 million.

In contrast rival Qantas — which is three times the size of Virgin Australia, is expected to post a record annual result of $1.6 billion in August.

However, both airlines are feeling the pinch from the looming election, which typically has a dampening effect on business and household spending.

Qantas announced last month it had revised planned capacity additions with domestic routes the most likely to cop any cutbacks.

CommSec senior economist Savanth Sebastian said it wasn’t only the airlines feeling the weight of uncertainty that would continue until the July 2 poll.

“The internal Commonwealth Bank indicator of credit and debit card transactions shows a similar story of activity levels consolidating rather than lifting,” said Mr Sebastian.

“Household balance sheets are looking pretty healthy but there’s no catalyst to go out and spend.”

Virgin Australia’s budget carrier Tigerair performed strongly over the quarter, carrying more than a million passengers — an increase of 14.7 per cent on the same period last year.

But the airline’s growing popularity failed to boost revenue, due to ultra-cheap fares offered by Tigerair in a bid to draw passengers away from Jetstar.

An airline industry insider said the results showed full planes didn’t necessarily mean full pockets.

“Fares will have to rise if they want to make any money,” said the insider.

Originally published as Virgin Australia to join Qantas in cutting back on plane seats