Australia's two largest domestic airlines, Qantas (ASX: QAN) and Virgin Australia (ASX: VAH), released their September traffic data over the last week. The data paints a picture of Virgin being on the up, with domestic customer numbers rising by 2.2% to 1.47 million, and Qantas struggling, with numbers down 2.8% to 1.79 million.
The airline industry uses a number of measures to monitor performance, including revenue passenger kilometres (RPK), available seat kilometres (ASK), and revenue seat (or load) factor (RSF). RPK represents the amount of revenue paying customers multiplied by the kilometres travelled by the aircraft. Virgin's domestic RPK rose 3.1% compared to the previous corresponding period (pcp), while domestic RPK conveniently dropped by 3.1% for Qantas.
ASK is a measure of the capacity supplied by the airline. ASK represents the number of seats available multiplied by the kilometres flown. Virgin increase domestic capacity considerably, with ASK increasing 6% from a year earlier, compared with a 0.9% increase at Qantas domestic.
Similarly, RSF is a measure of the utilisation or occupancy of the total available capacity. As Virgin increased domestic capacity by more than the increase in passenger kilometres, RSF fell by 2.2 points to 77. This compared favourably to the Qantas result, with RSF falling by 3 points to 73.2 due to lower customer numbers.
Virgin's domestic operations are clearly improving more rapidly than those of Qantas. Virgin noted that the average yield was greater than last year as the company increasingly targeted the premium market, whereas Qantas reported lower domestic yields due to ongoing capacity growth in the domestic market.
In the battle of the budget carriers, TigerAir (60% owned by Virgin) reported a 24% surge in RPK, a 13.4% rise in ASK and a 3.1 point improvement in RSF. This was largely expected as TigerAir continued to expand to new flight routes. Qantas' Jetstar domestic brand delivered a 3.0% rise in RPK, a 4.2% rise in ASK and a 1 point drop in RSF.
Internationally, both airlines saw reasonable improvement from a year earlier. Qantas recorded a 2.2% rise in passengers to 494,000, while Virgin improved by 5.2% to 233,148. Virgin International's RPK was flat, resulting in a 1.4 point rise in RSF, while a 2.5% drop in RPK for Qantas resulted in a 2.2 point drop in RSF.
Foolish takeaway
Virgin and Qantas appear to be heading on divergent paths based on the latest reported traffic data. Qantas is in the middle of a multi-year transformation of the company, with many of the benefits to be seen in the coming years as new aircraft come online.
Virgin, on the other hand, is attempting to undercut Qantas on price to attract corporate customers trying to reduce overheads as efficiency becomes key. It's difficult to tell which airline will win the war, however with both companies' share price below levels of 12 months ago, investors should be rewarded if one or both can register significant gains in coming months.
