Qantas drops BA in favour of Emirates deal

The ten-year alliance will see the Australian carrier direct European traffic through Dubai
Qantas drops BA in favour of Emirates deal
(Getty Images)
By Shane McGinley
Thu 06 Sep 2012 08:39 AM

Australia's struggling Qantas Airways has dropped its alliance with British Airways as part of a ten-year alliance with Dubai's Emirates, a move which will see the Sydney-based airline direct its European traffic through Dubai instead of Singapore.

Qantas will replace Singapore with Dubai as its hub for European flights from March 2013 and coordinate pricing, sales and schedules with Emirates under the partnership unveiled on Thursday.

"A key objective is to make Qantas International strong and viable, and bring it back to profitability," Qantas Chief Executive Officer Alan Joyce told reporters. "This partnership will help us do that."

Joyce said the airline remained committed to reaching break-even in its international business in the 2015 financial year.

He declined to comment on analysts' estimates that the alliance would save Qantas AUD$90 to AUD$100m before taxes annually, or provide the airline's own forecasts for cost savings.

"Emirates deal with Qantas is significant in several ways. Aside from allowing Qantas to use the custom built Terminal 3 building in Dubai, that Qantas is now routing its key Sydney and Melbourne connections through the city proves that Emirates competitive edge has forced the ailing Australian airline into joining a partnership that is being driven entirely by Emirates management team,” said Saj Ahmad, chief analyst at StrategicAero Research.

As part of the deal, the Australian airline will end its existing relationship with British Airways at the same time as a result of the new alliance.

“By breaking off its deal with British Airways, the UK flag carrier is now on the rack. It has lost a long-time partner in Qantas on the fabled Kangaroo-route and now faces the spectre of even more competition in Dubai given that Qantas will fly there too from its key Sydney and Melbourne hubs,” Ahmad said.

“If BA were smart, they too would join Qantas and Emirates but whether they do so is unclear as it would leave the oneworld alliance in disarray - it's unlikely BA or Qantas could ever convince Emirates to join since the Arab carrier has often stated that it is not interested in joining any of the global alliances. And frankly, it doesn't need to,” he added.

The long-anticipated deal was received warmly by investors, with Qantas' share price surging more than 6 percent in early trade.

The arrangement will enable Qantas to cut loss-making international routes and focus on its profitable domestic and budget operations, while helping Emirates compete against its main state-backed Abu Dhabi rivals Etihad Airways and Qatar Airways.

The alliance is deeper than a straightforward code-share arrangement - where airlines share some flights - but stops short of a global revenue-sharing deal or equity injection from either side.

For customers, benefits include the pair sharing airport lounges and frequent flyer programmes.

It helps Qantas, nicknamed the Flying Kangaroo, confront its disadvantage in the region as a so-called "end-of-line" carrier. Qantas has to spend more on fuel than other airlines in Asia to carry passengers on inter-continental routes as its aircraft are based in Australia.

The hub carriers can service Europe to Australia routes better by picking up passengers from multiple European, Asian and Middle Eastern departure points.

Qantas will drop its Frankfurt route as part of the deal.

The Australian airline has been stripping costs out of its business after a year troubled by a record fuel bill, rising competition and a labour union that has opposed the carrier's spending cuts.

It last month cancelled orders for 35 Boeing Dreamliner jets to further cut costs after posting a full-year net loss of AUD$244m (AUD$254.8m), its first loss in 17 years, due to its bleeding international division.

Emirates, meanwhile, is looking to increase its business in Australia to counter moves by Etihad and Qatar.

Etihad doubled its stake in Qantas rival Virgin Australia to 10 percent last month and Qatar Airways launched its first service to Perth this month, saying that it also wanted to partner with Australian carriers.

Qantas also faces increasing competition on domestic routes from Virgin, which is benefiting from alliances with Etihad, Singapore Airlines, Air New Zealand and Delta .

Qantas shares were up 5.8 percent at AUD$1.19 at 1244 GMT.

* With Reuters

For all the latest transport news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.