Virgin, Qantas still waiting for takeoff as economy thwarts growth

Virgin Australia will cut domestic capacity this year in the wake of a weakening economy.

Virgin Australia will cut domestic capacity this year in the wake of a weakening economy.

The airline has its annual meeting next week and is likely to provide an update on chief executive Paul Scurrah’s network review.

This will include a reduction of up to 3 per cent in capacity.

Routes advertised now show Virgin planning to increase capacity in the second half, but this will not happen.

The happiest person hearing this news will be Qantas’s Alan Joyce, who on Thursday released a downbeat commentary on first-quarter sales showing outside the resources market, the local conditions have worsened.

READ MORE: Domestic travel weakness hits Qantas bottom line

Outside airline industry games the news is not good for the Australian economy because discretionary spending clearly remains weak.

Cosy duopoly

The domestic airline market is a cosy duopoly and with the exception of the odd capacity war, is a stable market with capacity moving in line with demand.

That is exactly how Joyce likes it, which in part explains the downbeat commentary in Thursday’s first-quarter release.

The company has its annual meeting on Friday and depending on whether Virgin say something beforehand we can expect that commentary to be stepped up.

It's a great way of signalling to your competitor what you are thinking without actually doing it - if you know what I mean - Joyce is a past master of the tactic.

Today’s first quarter release shows international flights holding up well, along with the resources sector, but weakness particularly at the budget end.

This is the sector which impacts Virgin most.

International capacity is being withdrawn, which is helping Qantas’s revenue in the sector.

In lunchtime trade Qantas is down 3.4 per cent at $6.30 a share and Virgin is unchanged.