* Australian domestic aviation market hit by weak demand
* Virgin and Qantas shares fall by 2 pct
* Qantas may have also had a tough quarter: analyst (Recasts, adds analyst comment, additional details)
By Jamie Freed
SYDNEY, Feb 3 (Reuters) - Virgin Australia Holdings Ltd said on Friday conditions in the domestic aviation market remained tough after it reported a 37 percent fall in second-quarter underlying earnings before taxes.
Australia’s domestic aviation market has been subdued for the past year due to weak demand for flying from corporate customers, including mining companies, as well as government travelers.
Virgin reported an underlying profit before tax of A$45.9 million ($35.13 million) for the quarter ended Dec. 30, compared with A$73 million a year earlier, as margins came under pressure.
Virgin shares fell 2 percent to its lowest level since July, with larger rival Qantas Airways Ltd also falling 2 percent.
The warning of weak market conditions from Virgin could be a sign that Qantas has also experienced a tougher quarter than expected, Merrill Lynch analyst Matthew Spence said.
Qantas in October reported domestic yields, a proxy for ticket prices, had fallen by an average of 2.9 percent in the quarter ended Sept. 30.
“The impression in the market is it got better in (the December-ending quarter) but I think these Virgin stats don’t support that,” Spence said. “It is not Virgin and Qantas smashing each other by adding capacity. This is the demand side.”
Wage growth in Australia was at its slowest pace in two decades after the end of a resources boom, and there has been an increasing shift to part-time work, weakening demand for corporate travel.
Virgin said its domestic capacity rose in the quarter ended Dec. 31, even after cutting the number of flights by 5 percent as it removed E190 aircraft from its fleet. That meant some flights had been switched to larger Boeing 737 aircraft.
The airline did not comment on the performance of its international division. ($1 = 1.3065 Australian dollars) (Reporting by Jamie Freed; Editing by Matthew Lewis and Randy Fabi)