Air wars: Qantas cuts costs

Australia’s largest domestic airline, Qantas Airways (ASX:QAN) has been forced to cut costs and improve its customer service to attract and keep corporate travellers.

Competitor Virgin Australia Holdings (ASX:VAH) has been aggressively targeting the corporate travel market since John Borghetti took over management in 2010. Lyell Strambi, head of Qantas domestic operations and the regional Qantas Link brand, has told the Australian Financial Review (AFR) that Qantas has for maintained 84% market share in the corporate sector by revenue, despite aggressive competition from Virgin.

However, both airlines could see their revenues from corporate travellers slump, with most of the demand growth since the global financial crisis coming from the resources industry. If you’ve ever wondered why you see more business class passengers in high-visibility shirts these days, now you know.

Mr Strambi says a slowdown in the resources sector has yet to be felt in the aviation sector, although he noted that mining related companies were pushing back on airfare prices as they attempt to cut costs. He said that Qantas was working with mining customers to use larger aircraft and less flights to cut costs.

Qantas has been forced to add capacity on business routes to match Virgin and maintain its market share. Adding capacity had shrunk the revenue pool, because customer demand had grown at less than half the rate of capacity.

As a result, Qantas has also been forced to cut its own operating costs, improving flight scheduling and destinations, automate check-ins and consolidate heavy maintenance facilities. Qantas has also put thousands of its workforce through customer service training in an effort to match Virgin’s relatively young and keen staff.

Foolish takeaway

With so many moving parts it’s no wonder that airlines are tough businesses. Management have to be on the ball all the time and juggle several issues at once. Foolish investors may want to consider alternatives such as Sydney Airport (ASX:SYD) to gain exposure to the aviation market instead.

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Motley Fool writer/analyst Mike King owns shares in Sydney Airport.

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