Qantas Has Pretty Much Admitted Defeat In The Capacity War

Qantas CEO Alan Joyce (Photo: Bloomberg)

Qantas will not add any new capacity during the first three months of the upcoming financial year.

Virgin Australia has been placing increasing pressure on Qantas, undercutting its prices on domestic routes.

When it released its monthly traffic statistics report today, Qantas revealed it had struggled to fill the same amount of seats in April 2014 as it did over the same period last year.

They fell 1.5%, despite a 2% increase in capacity and a 0.4% increase in demand.

“In response to changing conditions to the domestic market, the Qantas Group has revised planned capacity additions in the first three months of financial year 2015,” the airline said.

Which will mean instead of continuing with its strategy of increasing capacity, it will “continue to monitor and adjust capacity according to changes in market conditions.”

These conditions, the airline said, include demand, supply and customer requirements during the first three months of fiscal 2015.

Both airlines have been at each others’ throats, with Virgin aggressively pricing its seats, and Qantas unwilling to sacrifice any of its 65% domestic market share.

Earlier this year Qantas announced a $235 million half-year loss and 5,000 job cuts. Analysts had always said the aggressive strategies employed by both airlines were unsustainable and would have to wind down eventually.

It now appears we’re reaching that point.

Virgin Australia is majority-owned by three overseas airlines who have injected a significant amount of capital which has allowed it to offer low-price fairs and undercut Qantas to win corporate accounts.

Qantas had appealed to the government for help before it announced its loss saying it was unfair that virgin could raise the capital from overseas investors when it was bound by ownership restrictions.

The government decided not to directly assist the national carrier with an investment or debt guarantee but did draft changes to the Qantas Sale Act that would allow an increase in the foreign ownership threshold.

These changes are not supported by the Opposition though, and it is considered unlikely they will be passed into law.

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