PERTH – Qantas Airways Ltd. faces a challenging environment on some routes where capacity is growing but demand isn’t growing as much, Chairman Leigh Clifford told a business group Wednesday.

“There is capacity growing in a number of key international routes, which we fly in and you would have to say ‘is there a growth in demand?’,” he said.

“I would say the growth in demand certainly doesn’t reflect the increase in capacity,” Clifford said. “So that is a really challenging environment, so we’ll have to manage that.”

Qantas has recently faced a sharp increase in competition on the Australia-U.S. route with V Australia and Delta introducing a services.

The airline has also suffered from a significant contraction in passengers in its premium classes.

Clifford also said that he expects airfares to rise following the current price war, which was triggered by a sharp fall in demand.

“I think the international airfares that have been in evidence, both to North America and Europe, I don’t think are long-term sustainable,” the chairman said.

Clifford played down prospects for consolidation in the airline sector.

“Given the nature of airline agreements and agreements between countries, consolidation of airlines is challenging to say the least,” he said.

Qantas had said for some time that it expected consolidation in the industry but merger negotiations with British Airways PLC collapsed last December and most recently Qantas Chief Executive Alan Joyce has discouraged speculation of any other merger talks in the near term.

Merging airlines is “much more difficult” than other industries because of the various bilateral agreements in place, Clifford said. “And there are only a limited number of airlines that make sense, and there are national priorities in some of these other countries. Sometimes their airlines are wholly owned by the government.”