Qantas says local market still tough

TRAVELLERS can expect to enjoy cheaper domestic airfares for a little longer, as Australia's major carriers keep adding seats into the local market.

Qantas chief executive Alan Joyce says that although the recent surge in capacity was slowing, there were still too many domestic seats for the airline group to begin raising yields, or average airfares per passenger.

"We still face a tough environment with a high degree of capacity growth in the market, pushing down yields and profitability," Mr Joyce told the Macquarie investment conference on Friday, according to prepared remarks.

"While we do not expect any improvement this half, capacity growth is alleviating, which will lead to a healthier domestic capacity position in FY14."

Australia's domestic airlines lifted capacity by 10.8 per cent in the six months to December 2012 - the highest increase in eight years.

However, the latest traffic figures so far in 2013 from both Qantas and Virgin suggest the period of rapid capacity growth was coming to an end.

The high degree of volatility and uncertainty in fuel prices, foreign exchange, the global economy and "competitive developments" meant it was not possible to provide full year profit guidance at the moment, Mr Joyce said.

He said Qantas would continue to book transition costs in the second half of 2012/13 as a result of its global partnership with Emirates and other changes aimed at returning Qantas' international operations to profitability.

"We've always made it clear that long-term gain can't be achieved without the short-term cost of transition," Mr Joyce said.

"There will be cost impacts within the second half of FY13, which is typically the weaker half in each year."

Those transition costs included a $50 million impact of switching Qantas' hub for European flights from Singapore to Dubai.

At 1243 AEST, Qantas was down half a cent at $1.845.

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Local business ups pressure on gas

THE end of civilisation is nigh, if some of Australia's leading companies are to be believed.

When Australia's $180 billion suite of liquefied natural gas (LNG) mega-projects come online from next year, most of the resource will be shipped to an energy poor and hungry Asia willing to pay big for it.

The alleged result? Local Australian industries will have no gas or oil from their own country to use to fire up their factories, or at best be unable to afford what is left.

A gas shortage in Australia would be a paradox given BP predicted in a world energy outlook during the week that Australia would overtake Qatar as the largest LNG supplier by 2018.

So, how justified are the fears?

Oil and gas producer Santos says it is already striking new domestic gas deals in Australia at export parity prices close to $9 a gigajoule, double current levels.

It also will have to buy gas to feed its $18.5 billion Gladstone LNG project, as will other Queensland LNG projects.

Energy retailer and wholesaler AGL's boss says he sympathises with local manufacturers.

AGL's suppliers BHP Billiton, ExxonMobil and Santos are currently jacking up domestic gas prices to reflect what Asian buyers will pay.

It's leading to arbitration with AGL that is costing it millions, says chief executive Michael Fraser.

Any threat to cheap and available energy in Australia is a highly sensitive political issue as it is regarded as an essential service.

East coast gas demand is set to triple in four years as Queensland's LNG plants come online.

"If you're a large manufacturer you've got governments saying we're not going to support a (gas) reservation policy," AGL's Mr Fraser told AAP, with Western Australia the only state to set aside gas for domestic use.

"Then you see a state government in NSW turn around and say: not only will we not reserve gas for you we're actually going to sterilise resources and not allow it to be developed."

AGL recently suspended expansion of its Camden project when new rules came in banning drilling near homes, due to community opposition about the health threats coal seam gas might pose.

Mr Fraser warned NSW premier Barry O'Farrell he was creating sovereign risk issues for the state.

Global companies have weighed in.

High energy user and aluminium giant Alcoa says gas should be set aside for local industries because it would diversify and thus benefit the Australian economy so it would not just rely on mining.

Global firm Dow Chemical's head Andrew Liveris, an Australian, has described the abundance of cheap shale gas and oil in the US as a "gift from heaven" that had reignited energy-intensive manufacturing there.

In contrast, the only winners in Australia were oil and gas companies while locals paid as much for Australian gas as countries that didn't produce it such as Japan.

Canada and Argentina keep their gas prices down for domestic use and reserves, but producers in Australia say that will make projects uneconomic and threaten to pull investment.

Industry analyst Morningstar's Mark Taylor rejects any suggestion Australians won't have enough gas despite the exports and says the country will be better off through the investment and revenue from LNG projects.

"I think there's enough gas to support a fairly reasonable price to keep it low enough to be not too damaging to people," he told AAP, citing increasing unconventional coal seam and shale gas in Australia.

However gas prices would increase three-fold due to demand until game changing energy technology arrived: such as nuclear-type thorium reactors or fusion, he said.

Don't assume every gas producer wants to endure the complex process of converting gas to liquid for export rather than sell to locals, Mr Taylor said.

He thinks a lack of oil production and refineries in Australia is more of an energy security risk, but the suite of LNG projects offset that and could support a future with cars and trucks running on gas.

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