A former Qantas chief economist says the airline's response to competition with Virgin Australia is pulling it into the red.
Qantas's share price dived 11% on Thursday after it shocked shareholders by forecasting a loss of up to $A300 million for the current half-year and plans to cut 1000 jobs.
Chief executive Alan Joyce put the blame for the loss squarely on his main domestic competitor, Virgin, and its foreign backers including Air New Zealand.
Mr Joyce says Virgin has created an "unprecedented distortion" through its recently announced $A350 million capital raising.
He says the fight for market share means both airlines are adding domestic seat capacity to an already over-supplied market.
But former Qantas chief economist Tony Webber says what is really hurting the airline is the way it is reacting to the challenge from Virgin.
"Certainly Virgin's capacity expansion has done a lot more damage than expected, but it's also Qantas's reaction to that.
"Because Qantas is targeting 65% of the domestic market whatever Virgin does Qantas has to match that."
Mr Webber says that doesn't fit with the airline's position as the premium domestic carrier.
"I think of Qantas domestic mainline as the BMW of the airline business and that business model's not meant to be about growing volume as quickly as possible. That part of the business is all about generating strong margins by getting your yields up.
"And you don't get your yields up by pouring lots of capacity into the market to match market share," he says.
