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Sun 9 Sep 2012 11:54 AM

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Qantas eyes profit on int flights by 2015 - CEO

Aus airline has entered into ten-year Emirates alliance; will move international hub to Dubai

Qantas eyes profit on int flights by 2015 - CEO
Struggling Australian carrier Qantas chief executive Alan Joyce (R) and Emirates president Tim Clark (L) (AFP/Getty Images).

Qantas Airways’ ten-year alliance with Dubai’s Emirates will help the struggling Australian carrier’s international division to break even within the next three years, chief executive officer Alan Joyce said in an interview at the weekend.

“This is a big step in the right direction for Qantas international,” Joyce said in an interview on Sunday with the Australian Broadcasting Corporations’s Inside Business TV program. “We see a path through to this business breaking even by financial year 2015. We do want to make sure Qantas international goes back to profits.”

As part of the deal announced last week, Qantas will replace Singapore with Dubai as its hub for European flights from March 2013 and coordinate pricing, sales and schedules with Emirates.

"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 arrangement will enable Qantas to cut loss-making international routes and focus on its profitable domestic and budget operations, while helping Emirates compete against from 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 .

* With Reuters

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