Recession buffets airlines

FAIRFAX

NOT FLYING: Qantas and Virgin Blue cut the number of flights between Sydney and Melbourne by almost 10 percent in May.

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Qantas and Virgin Blue have cut a 10th of flights on Australia's busiest route between Sydney and Melbourne, in a sign the airlines are suffering from a decline in high-yielding business traffic.

The latest government figures show that the downturn in domestic travel has been severe in business class, with the airlines having to discount fares significantly to fill seats at the front end of aircraft.

The Bureau of Infrastructure and Transport's index of business-class fares has dropped 8 percent since June, the biggest monthly fall since the index began in 1992. Business-class fares, in real terms, are now almost 14 percent cheaper than when the index peaked in October last year.

Some of the biggest cuts have occurred on the so-called "golden triangle" between Sydney-Melbourne-Brisbane.

The airlines cut the number of flights between Sydney and Melbourne by almost 10 percent in May, compared with the same month last year. This resulted in a 13 percent fall in seats available, outstripping a 7 percent drop in passengers.

Competition on the Sydney-Melbourne route has intensified further since the May figures, after the Singapore Airlines-backed Tiger Airways began up to four flights a day this month.

Qantas and Virgin have so far resisted the temptation to cease flying to some destinations, preferring to cut flights on high-frequency routes such as Sydney-Melbourne.

The decline in passengers on the Sydney-Melbourne route, the country's busiest, is a concern for the airlines because it has the largest slice of high-yielding business traffic.

The figures also show a 15 percent drop in seats available between Sydney and Brisbane in May, and an 8 percent fall between Melbourne and Brisbane. Australia's two biggest airlines have been relying on their domestic networks to offset large falls in demand for international flights.

Virgin said last week that the yields from its long-haul carrier, V Australia, had been awful.

Shares in Qantas rose 7 cents to A$2.04 yesterday and Virgin closed up 0.5 cents at 30 cents.

- © Fairfax NZ News