This is the link to this story:http://www.smh.com.au/business/virgin-brac...0828-24ypy.html
VIRGIN Australia has conceded that the discounting of fares for lucrative business travellers is the most aggressive it has been since ''way before'' the collapse of Ansett in 2001.
While a boon for travellers, the price war threatens to dent airline earnings further in the first half of the new financial year as Virgin continues to target key corporate routes dominated by Qantas. The latter plans to boost capacity in the domestic market by as much as 11 per cent in coming months.
Although Virgin swung to a $22.8 million annual profit, from a $68 million loss previously, the impact of the competition was evident in its earnings in the second half when it recorded a $29 million loss.
Days after Qantas ramped up efforts to counter its rival, Virgin's chief executive John Borghetti said the discounting of fares to win over corporate travellers was the most aggressive it had been in decades.
''I have been around a long time … 40 years, and I haven't seen discounting to this level since way before Ansett stopped flying,'' he said. ''There is a lot of aggressive competition, but frankly we were expecting it and we will be as competitive as we can be to ensure we hold our position. We do have a cost advantage on our side.''
Although Virgin will boost capacity by as much as 9 per cent in the first half, Mr Borghetti emphasised that four-fifths of its growth would be on routes between the east coast and Perth using twin-aisle A330 planes.
Nevertheless, the intensity of competition between Australia's airlines is underscored by expectations that total capacity on the nation's busiest route between Sydney and Melbourne will rise by 24 per cent in the
first half. The bulk of the increase will be by Qantas.
But Mr Borghetti remained steadfast yesterday despite the threat to its earnings in the short term.
''We are certainly not going to go away. If people think I back away, they obviously don't know me,'' he said. ''Irrespective of what they do, our strategy will not change.''
Like Qantas last week, Virgin did not give profit guidance for the full year because of the ''uncertain economic environment.''
Mr Borghetti declined to say to what extent the capacity glut was likely to cut into Virgin's earnings in the new financial year.
But he admitted that competition in the leisure market was equally aggressive.
Virgin is also targeting productivity gains of $400 million over the next three years.
Mr Borghetti said he would not resort to ''slash and burn'' tactics such as redundancies, instead achieving the targets by improvements in aspects such as reducing aircraft fuel burn and turnaround times of planes at airports.
Shares in Virgin fell as much as 5 per cent after the airline's net profit fell short of analysts' estimates, before recovering to close unchanged at 48¢, its highest level since May 2010.
Qantas rose 1¢ to $1.19.
This could be very beneficial to the travellers but a price war usually has only one victor and in the long run will it make flights even more expensive? Only time will tell but I for one will take full advantage of the cut price fares, but only if the price is right.