Qantas shares are crashing after it sounded a warning bell on the Australian economy

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Domestic travel has slowed in Australia as the nation heads towards a federal election.

Qantas has cut its capacity growth forecasts after seat demand began to ease over Easter.

A short time ago, Qantas shares were down 12.5% to $3.55.

“In response to changed demand conditions, the Qantas group has revised planned capacity additions in the final three months of financial year 2016,” the airline said in its monthly traffic statistics update.

It was unusually clear in attributing the drop in demand to specific factors.

“Some softness in demand, related to the upcoming federal election and recent drop in consumer confidence in Australia, began to emerge over the peak Easter and school holiday period in late March and continued to be seen in forward bookings in April and May.”

Consumer sentiment crashed in March, with the benchmark Westpac-MI confidence index tumbling 4%.

An election could be held as early as July 3, depending on whether the government can get legislation for the Australian Building and Construction Commission through the Senate and PM Malcolm Turnbull decides to send voters to the ballot box in a double dissolution.

Qantas says domestic capacity growth in the final quarter will be negative compared to the prior corresponding period.

Qantas has revised capacity growth guidance to between 0.5% and 1% from about 2% in the second half of the financial year.

From mid-April, Qantas International capacity between Australia and mainland US has been reduced by removing three Sydney-Los Angeles services and re-directing capacity to Singapore and Hong Kong.

These changes will result in total market seat capacity growth between Australia and the US of 6%, compared to 9% growth prior to these changes.

Total Qantas Group capacity is expected to increase by 5% to 6% in the second half of the financial year, driven by cost-efficient growth from B787 Dreamliner aircraft at Jetstar International and increased utilisation of existing group fleet at Qantas International.