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Virgin passenger numbers up, but air wars continue

Virgin Australia (ASX: VAH) announced that domestic passenger numbers were marginally up for October and overall passenger numbers now up 4.5% for the year to date.

That’s a respectable overall increase, but it was a weak month for international passenger numbers, with the airline blaming that on the cancellation of flights into and out of Denpasar airport in Bali. This is one of Virgin’s key international routes, the cancellations due to an inter-governmental summit there in early October.

The standout performer was Tiger Air Australia, the low-cost airline Virgin jointly owns with Air Singapore. It grew total passenger numbers 28.2% for October, with almost 90% of seats filled on its October flights.

Virgin’s price strategy has sparked a mutually destructive dogfight with Qantas (ASX: QAN), and both airlines have disappointed the market in 2013. Over a longer time horizon Qantas has been the main casualty of the air wars, with chief executive Alan Joyce feeling the pressure and recently claiming that rivals’ access to foreign capital does not make for a level playing field.

In the three years to 30 June 2013, Qantas shares have lost 39% of their value, compared to a 44% rise for Virgin Australia and an even better return for Air New Zealand (ASX: AIZ). To rub salt into Qantas’s wounds Virgin Australia is now part owned by Air New Zealand, which has been a key backer of Virgin’s recent $350 million capital raising, in part to help underwrite the cheap airfares that are so hurting Qantas.

Foolish takeaway

The battle for the air is now getting increasingly bitter and personal, with mud-slinging between the companies occurring on an almost daily basis. Virgin has threatened legal action against Qantas while it leans on the government for greater regulation of the industry and specifically Virgin. Not exactly a pretty picture and not a good look to investors, with increasing uncertainty over the airline industry’s ability to deliver any kind of decent returns.

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Motley Fool contributor Tom Richardson does not own shares in any of the companies mentioned in this article. 

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