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Sun 29 Jul 2012 09:03 AM

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Qantas deal would be great for Emirates

In the face of declining market share, the Australian carrier has little option but to accept a tie-up

Qantas deal would be great for Emirates
A Qantas aeroplane takes off at Melbourne Airport on October 31, 2011 in Melbourne, Australia. Qantas flights are expected to return to the skies at 2:00pm today, after a decision by Fair Work Australia to terminate the industrial action that grounded the airline from Saturday. (Getty Images)

It may still be a matter of speculation, but all the signs are pointing towards a tie-up between Emirates and Qantas.

Last week, the Australian flag-carrier confirmed that it was in talks with a number of carriers, including the Dubai-based airline, about a potential codeshare deal. This comes after Emirates president Tim Clark said in June that he was open to the idea.

Is this a good deal for Qantas? I doubt it — but then again this is very much the airline’s last-chance saloon. The ‘Flying Kangaroo’ has been on a lengthy downward spiral, largely due to the fact that it is an “end-of-the-line” operator in a part of the world where competition has steadily intensified in the last few years.

The steady deregulation of the Australian skies has seen Qantas’ share of international traffic in its own market dwindle to 17.7 percent in July, according to data from the Centre for Pacific Aviation (CAPA).

Emirates, meanwhile, has been steadily increasing its share in the same market. It is now the second biggest operator in terms of international traffic in Australia, with just under 10 percent of the market - and that’s even before it adds Adelaide to its network in November, and expands frequency to Perth in December. At home, Qantas is clearly fighting a losing battle.

Making matters worse, Qantas had to ground its entire fleet last October due to industrial disputes, and arbitration proceedings have been going on between the airline and the unions since March. This year, the operator has warned of its first net loss since 1995, pushed downwards by a near-half-a-billion-dollar loss on its international routes.

So Qantas will be hoping that the Emirates deal can shore up its market share on the European routes, which have been slowly eroded by the Gulf carriers. It currently only flies directly to one European destination — Frankfurt — although its membership of the oneworld alliance mean that its passengers have access to many more. However, that arrangement means that its customers have to change in Germany before taking a separate flight to their destination of choice.

By codesharing with Emirates, Qantas customers will be able to fly to a bigger range of destinations via the tried-and-tested connectivity and the more strategically convenient location of Dubai International Airport. It would also allow Qantas to concentrate on its key Asian market.

Frankly, the Australian operator has little choice; Virgin Australia — its great rival — has already tied up with Etihad (which has just been cleared to up its equity stake in the airline to ten percent) and the only other option — doing nothing — would result in its market share collapsing still further. And if you’re going to have a codeshare deal, it might as well be with the top player in the market.

If this goes through, Emirates will be rubbing its hands with glee. As the undoubted senior partner of the agreement, the super-carrier will be happy to hoover up Qantas’ passengers, while at the same time keeping a close eye on any attempts by the latter to try and take business from its Dubai hub. In addition, Emirates will also be able to get a grip not only on international routes to Oceania, but Australia’s enticing domestic market as well. Another big winner will be Dubai International Airport itself. The facility already has ambitious plans to be the world’s most popular airport in terms of international traffic by 2020, and addition of yet another marque airline can only help towards that goal.

And all of this will effectively cost nothing - no equity payouts, and no clumsy management responsibilities with regard to other airlines. Perhaps there is such a thing as a free lunch after all.

Ed Attwood is the Editor of Arabian Business.

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