Absorbing overcapacity will take time - Virgin boss

Josh Bayliss. Photo / Greg Bowker

Virgin Group chief executive Josh Bayliss says overcapacity harming airline profits in Australia may take some time to be absorbed.

The New Zealander, who is also on the Virgin Australia board, said the Qantas approach of drawing a "line in the sand" aimed at maintaining 65 per cent domestic market share was irrational.

"We see some potential improvement but when you have that much capacity in the market it needs to be absorbed and that will take time," he said during a brief visit to Auckland last week.

Qantas is on track to lose close to $500 million this year and is fighting a bitter domestic market share war with Virgin, which itself lost close to $100 million in the past six months.

"The strategy that they embarked on by drawing the 65 per cent line in the sand was unnnecessary so the wounds they're suffering are self-inflicted," Bayliss said. "To continue to dump capacity to maintain market share is a wholly irrational position to take."

Virgin Group has a 10 per cent stake in Virgin Australia, most of which is owned by Air New Zealand, Singapore Airlines and Etihad.

The group owns 51 per cent of international airline Virgin Atlantic, the remainder of which is owned by Delta.

"We certainly had a couple of tough years - with Delta as a partner we're finding a lot of opportunity for a business that has a strategic advantage at Heathrow, which is the most slot-constrained airport in the world," Bayliss said.

Consolidation of the airline industry in the United States had helped Virgin America also, which was 49 per cent owned by Virgin Group. The company had posted a US$10.1 million ($11.7 million) profit, the first time it has been in the black for the full year since its founding in 2007.

Virgin America topped a ranking of 15 US carrriers in a study by researchers at Wichita State and Embry-Riddle Aeronautical universities who said airlines delivered their best performance in 2013 in the 23-year history of the quality rating.