We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Sat 5 Apr 2014 04:14 PM

Font Size

- Aa +

Stronger together? Reviewing Emirates' historic partnership with Qantas

One year after the “historic” Emirates-Qantas partnership deal, the Australian flag-carrier is reeling from its largest overall loss for 20 years. But is it too soon to judge one of commercial aviation’s biggest tie-ups?

Stronger together? Reviewing Emirates' historic partnership with Qantas

On 1 April last year, the 900-seat Asateer tent at Dubai’s iconic Atlantis on The Palm Jumeirah was teeming with celebrities and oozing excitement. Champagne flowed and Australia’s star chef Neil Perry personally prepared a three-course meal for the prestigious guests.

On that occasion, Qantas CEO Alan Joyce stood on stage, chest puffed out, as he hailed the new partnership with one of the most talked-about airlines in the world, Emirates, as its president Tim Clark stood nearby.

In Sydney a day earlier, two A380s — the world’s largest planes — each bearing the two airlines’ livery, flew over the Sydney Harbour Bridge. The pictures were broadcast across the world.

The bilateral agreement that would see the world’s second-oldest airline relocate its European stopover headquarters from Singapore and the pair codeshare to more than 65 destinations was described by some as “historic”, a deal that would set a new precedent for aviation alliances globally.

But on the first anniversary of the agreement, last week, neither airline boss would speak publicly about the partnership. The mood at Qantas’ headquarters was in no way conducive to a party, either in Sydney or Dubai. The news that 5,000 staff would be retrenched in a bid to save the airline’s failing international arm was still sinking in.

Perhaps a little over-zealously, in hindsight, Joyce had promoted the Emirates tie-up as “the most important element” of his multi-pronged strategy to save Qantas International, which accounted for the majority of the airline’s overall A$244m ($225m) loss in 2011-12.

In February, he was forced to painstakingly reveal the publicly listed airline’s international losses had actually ballooned three times over. Earnings before interest and tax (EBIT) during the second half of 2013, came in at a loss of A$262m ($242m) — nearly triple the A$91m ($84.07m) loss reported in the first half of 2013. The result contributed to the airline’s largest overall loss in nearly 20 years. It was “unacceptable and unsustainable”, Joyce admitted.

Clearly, the Emirates relationship has not produced as fast as Joyce had hoped.

“At the moment, the impact of the Qantas-Emirates partnership has been fairly muted, probably not as large as initially anticipated by media and industry observers,” CAPA Middle East and Africa senior analyst Simon Elsegood tells Arabian Business.

Clark also indicated the partnership could be doing better. In the weeks leading up to the anniversary, he told The Telegraph newspaper Qantas’ “problems” had diverted attention from the relationship with Emirates.

“It hasn’t helped that they [Qantas] have had problems,” Clark was quoted as saying. “When that happens to a relatively small group, there are other things that fall slightly by the wayside.

“I’m not saying for a moment that Alan has let our relationship between the two companies and the endgame... slip, it’s just that he has got quite a tough situation on his hands.”

But Qantas International CEO Simon Hickey is playing down the expectations his airline had placed on its decision to team-up with the world’s fastest growing carrier.

“The alliance with Emirates has provided an enhanced customer proposition, including an extensive one-stop to Europe, the Middle East and North Africa; it wasn’t a magic bullet for turning around the business,” Hickey tells Arabian Business.

“It has made a huge difference to the challenges we had in Europe... The reaction to the partnership has been extremely positive to the point where the highest customer satisfaction ratings across our international network are on flights from Sydney and Melbourne to Dubai.”

John Strickland, director of UK aviation advisory firm JLS Consulting, says Emirates could still prove to be the saviour Qantas needs.

“It’s much too early to tell whether the alliance has been successful. Qantas has problems which it needs to address, which arguably make this partnership all the more important,” he says.

Reluctant to talk budget specifics — “it’s commercially sensitive” — on the anniversary, the airlines instead promoted the benefit their alliance had made to tourism both in Australia and Dubai.

Qantas says it carried more than 1 million passengers through Dubai, most of whom were on their way to Europe, other Middle East cities and Africa. It did not detail how many of those stopped in the emirate but the Dubai Department of Tourism and Commerce Marketing (DTCM) recently reported a 39 percent increase in Australian tourists, which it put down to the alliance.

The report says the new visitors have increased tourism expenditure in Dubai, including contributing to a 16.1 percent increase in hotel revenues year on year.

Flights to Dubai International Airport from Australasia (including New Zealand) also increased 30.5 percent last year, making it the fastest expanding market in terms of percentage growth.

Moving its European stop-over hub to Dubai and increasing its destinations across the continent from five to 65 has significantly lifted Qantas’ appeal for European travel among Aussies.

The partnership also has boosted Australian domestic tourism, with Emirates’ customers now able to book connecting tickets to 32 Australian regional centres, travelling on Qantas or Jetstar codeshare flights.

“Outside our city gateways, international customers have purchased an average of five times more fares to the top regional centres, including Cairns and Hobart, than under our previous partnership arrangements for Europe, and we have seen a significant increase in bookings for new codeshare destinations including Alice Springs, Darwin and Townsville,” Hickey says.

UAE arrivals to Australia increased 17 percent last year to 33,000, with feeder traffic from key European markets such as the UK, Germany, France and Italy also up, according to Tourism Australia, the government body with responsibility for promoting inbound visitors.

However, this boost cannot be entirely attributed to the airline alliance. Emirates had already signed a marketing deal with Tourism Australia before announcing the Qantas partnership. The Tourism Australia contract promotes Down Under to the airline’s extensive network, opening up Australia to travellers from more than 30 European locations, via Dubai.

“Linking Australia’s visitor appeal with Emirates’ internationally recognised brand, and extensive schedule, has been a big success, particularly throughout Europe, where the airline is so well established and where so many of our high volume inbound markets are based,” Tourism Australia acting managing director Frances-Anne Keeler says.

But tourism is not going to save Qantas International, which is now pleading with the Australian federal parliament for a debt guarantee and to lift a 49 percent cap on foreign ownership of the airline — a rule that does not apply to its largest competitor Virgin Australia, in which UAE flag carrier Etihad has a 19.9 percent stake.

“I think it’s probably lived up to Emirates’ expectations, or it certainly hasn’t been a disappointment for Emirates. But if you look at what’s happened to Qantas since, it clearly hasn’t stopped the bleeding for Qantas International,” Andrew Charlton, founder and CEO of Aviation Advocacy, based in Geneva, tells Arabian Business.

“Qantas International continues to lose a lot of money and hasn’t shown any improvement [so] it’s harder to say from the Qantas side that it’s been a tearaway success.”

The bilateral agreement was also touted as being an industry changer — two significant airlines tying together.

Since the late 1990s, international airlines looking for a partner had tended to join one of the three global alliances — Star, oneworld and SkyTeam — which are each led by at least one of the world’s largest carriers and include more than a dozen members, who have the benefit of selling tickets to a vast spread of cities without having to build up the resources to operate the flights themselves. Qantas was a launch member of oneworld in 1999, and its membership is not affected by the Emirates partnership.

In Dubai in February, Virgin Atlantic founder Sir Richard Branson argued the Emirates-Qantas alliance should not have been allowed because it would stifle competition, particularly on the already highly contested ‘kangaroo route’ (Australia-London).

The alliance was certainly significant, but many observers consider it “hardly unique”.

British Airways and American Airlines already had joined forces, in February 2010, bringing together two of the world’s largest carriers, who both crossed the Atlantic, similar to Emirates and Qantas, which each traverse the kangaroo route.

That deal was followed by Virgin Atlantic and Delta, the two other big players in the UK and US.

Recently, German flag-carrier Lufthansa also has announced specific agreements with Star members, while leaving out others.

However, Qatar Airways has bucked the trend, joining oneworld late last year.

Meanwhile, Etihad has carved its own niche strategy, buying equity in six airlines, from Virgin Australia and Jet Airways to tiny Swiss-based regional carrier Darwin Airline.

Charlton says there’s a new preference for “individual solutions”. “Arguably, that’s what Etihad is doing, it’s doing it with equity. And Emirates did it once with Qantas on a contractual basis,” he says.

“[Describing the Emirates-Qantas deal as] historic is ironic. In many ways, it’s back to the future,” Charlton says. “It has shown that the looser alliance model has reached its high point and that what is actually working are focused bilateral agreements that networks specific market segments or geographies. [The global alliances] are less effective than going and addressing particular issues.”

Despite Qantas’ financial predicament, Clark has made it clear he has no interest in following Etihad’s model and investing in its partner if the foreign ownership cap is removed.  The airlines simply share flight codes, airport lounges and frequent flyers.

Hickey says they will continue to “tweak” the partnership but there are no plans to expand it to cover other services.

“We are always looking for innovative ways to work more efficiently with Emirates, however we are currently satisfied with both airlines managing their own ground handling, engineering and catering services,” he says.

He denies Qantas’ financial woes has distracted it from working on the Emirates partnership.

“We are absolutely committed to our partnership with Emirates,” he says. “We meet regularly with the Emirates teams to discuss how it’s progressing and continue to make improvements.”

The deal still has four years to run and additional joint lounges, marketing arrangements and codeshares are expected. Elsegood suspects Dubai may also gain some of Qantas’ maintenance (which in itself could be a bugbear in union-heavy Australia).

The pair also could potentially work closer in Asia, where Qantas has since redirected some of its focus now that the aircraft it had used to fly to Singapore en route to London have been freed up to better connect its customers to the emerging north.

Qantas’ capacity to Hong Kong has increased 10 percent and its dedicated Singapore flights have grown 40 percent since it closed that hub.

Former Qantas chief economist Anthony Walker says any greater changes to the alliance could depend on whether Qantas management remains intact.

“Assuming they remain, I suspect it will be just tweaked around the edges to better accommodate both carriers’ loyalty programmes, yield management and earnings issues,” Walker says.

“One of the issues they may also talk about is the fact that Alan Joyce has repeatedly said that the problem with the international market is excess supply and that Emirates is the biggest contributor to that excess supply problem.”

The future of the working relationship may also become harder if those who were responsible for crafting the partnership and then its general operation are among the thousands of Qantas staff due to lose their jobs.

At the end of the day, the alliance is still young. Charlton is adamant it could achieve much higher results.

“I think the alliance has enormous potential,” the Australian, who lives in Geneva, says. “For example, I can go from Geneva to Melbourne and visit my mum with one stop-over each way. That’s so much better than the alternative used to be; for an Australian who wants to go to Europe, the capacity to sell this as a Qantas service would be easy.

“[But] they haven’t quite yet worked out how best to see it and make it a winning combination.

“[However], I’m sure if another, similar opportunity came up [Tim Clark] would consider it.”

Digital magazine: Read the latest edition of Arabian Business online

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.
David 5 years ago

The point is that you could before and still can fly Geneva to Melbourne one-stop on Emirates. The customer has gained nothing. Emirates already serves the Australia Dubai route well. So what does Qantas add? I was surprised when it was first reported, I can't see anything in it for either party. Qantas has removed a point of difference it had with Emirates for people flying to Europe and Emirates has gained a competitor on its Aus - DXB route. Wonderful.

Karl 5 years ago

The effects of this are as follows:
1/ Emirates (EK) has one big competitor /ie. British Airways(BA) & Qantas(QF) JV/ less on Australia-Europe
2/ QF had to cut a number of its routes and its capacity and went into reds and need to cut workforces.
3/ EK become dominant carrier on Australia - Europe
4/ EK become an important player on Australia - NZ routes.
So all gains are on EK side, competition, QF and passengers are loosing thanks to EK/QF alliance. This is why many countries do not want to allow EK to fly more often to more destinations, as EK undercuts prices and kills competition thanks to deep pockets of its owners.