Virgin set to chop routes...

[Montague S]

who won't be cutting routes is the question...

Virgin Blue is expected to follow Qantas's lead and announce cuts to its less profitable routes as soon as next week.

The airline has a "strategic review meeting'' scheduled for next week, where the key item of discussion will be the airline's soaring fuel bill.

After Qantas and its low-cost offshoot Jetstar yesterday announced plans to cut 5% of their domestic and international capacity from July, it is expected Virgin Blue will follow suit and cut flights on routes where it is struggling to turn a profit.

Virgin Blue spokeswoman Heather Jefferylined to comment on Virgin Blue's plans but hinted the airline could take drastic steps to cut its fuel bill.

"We've said before no airline model can remain profitable with jet fuel at $US170 a barrel. Airlines can't continue to absorb fuel costs at these levels,'' said Ms Jeffery.

Qantas-Jetstar's reduction in services on low-yielding leisure routes - such as Ayers Rock, the Gold Coast and Hobart - will allow Virgin Blue to reduce capacity and still maintain its 30-odd per cent share of the domestic market. It is the first time since the collapse of Ansett in 2001, that the Australian domestic aviation market has contracted.

Shares in Virgin Blue plummeted 5%, or 3.5 cents, to a new record low of 68 cents, and have now fallen more than 70% over the past year.

The fall in Virgin Blue's share price has been more dramatic than Qantas's, given the low-cost carrier has less of its fuel hedged than its full-service rival.

Another disadvantage Virgin Blue has, is its higher exposure to price sensitive passengers. Qantas's dominance of the corporate and government travel market means a higher percentage of its passengers can absorb higher ticket prices and fuel surcharge rises.

This is one reason why Virgin Blue has been keen to attract more corporate passengers in recent years, through the introduction of a frequent flyer program, lounges and more recently premium economy seats on its 737 aircraft.

Sydney Morning Herald

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