Crikey



Qantas Asia ambitions raise difficult strategic questions

The one question that Qantas probably doesn’t want asked about its proposed Emirates partnership is whether it actually means it gets more passengers for its own international services?

Because the answer is ‘No.’

It is also a question that leaps off the screen on the AFR this morning about how Qantas CEO Alan Joyce has a plan B in Asia, once the fine print is absorbed.

There is nothing in the proposed Qantas-Emirates partnership which would induce the rapidly growing loyal cadre of customers for Emirates flights to swop to Qantas flights.

This is because Qantas is in effect transferring to Emirates the risks and rewards of serving the Western Australia, South Australia and Queensland markets to all of Europe, and via its Dubai hub, those dozens of ‘funny places’ all over central Asia and a large part of Africa that Qantas couldn’t even locate on an Atlas before it discovered that the world was rapidly changing, and creating vast new markets which would also be relevant to Australian business and Australian tourism.

As the AFR story details this morning, but which Qantas did actually say on day one of the announcement of the proposed partnership, it will also use Emirates services between Australia and Asia (Singapore, Bangkok and Kuala Lumpur depending on which Australian city is looked at) to add to its capacity to Asia.

But counting Emirates seats as Qantas seats isn’t adding capacity, or dollars, or anything, to Qantas as an Australian airline operating an international business as stipulated in the Qantas Sale Act.  They were Emirates seats, they are Emirates seats, and they will be Emirates seats, flown on those routes, and the risks and rewards of flying them belongs in overwhelming measure to Emirates.

This is true of any code-share seats in any similar airline agreement.

But for Qantas to somehow redefine the concept of a code share agreement as giving it free access to huge numbers of additional seats to sell is facile. The brand, the product and the experience will not be that of Qantas, and make no mistake, when it comes to those Emirates flights on 777 where the generous amenity of its A380s is reduced to a higher density seating arrangement on those very efficient Boeings, the product doesn’t offer the spatial amenity of a Qantas flight.

What the partnership does, should it be approved, is to reduce the scope of the risk Qantas takes in being an international airline, and the size of its capital expenditure program, both highly desirable things from an accounting perspective, but at the ultimate cost to the consumer of choice, and of downscaling Qantas.

Perhaps, as many have argued, managing Qantas downwards to a Little Australia business, is just a global reality. Whether this is true or not, or more a reflection on an inadequate board and management, is beside the point, which is that the proposed deal with Emirates isn’t about making Qantas bigger, richer or more relevant.  It is about giving away the Australian market, which is its natural franchise, to a former competitor.

Whether this is good, or bad, or inevitable, it needs to be recognised for what it is.

Tags: , ,

Categories: aviation

You must be logged in to post a comment.

14 Responses

Comments page: 1 |
  1. The new Emirates A380 terminal at the old Dubai airport would indicate that the new 6 lane airport is not going to be built. If Dubai World has had a rethink on this project it would indicate their maintence and possibly Qantas A380 will be done at the low cost new airport with lots of unused space to fill.

    by gapot on Dec 12, 2012 at 9:22 am

  2. Ben code shares in the manner QF is proposing are common. If you buy a Delta Ticket London to Montreal it is all on an AF plane (with a back track to Paris). If you buy a Virgin ticket to almost anywhere except LA and Abu Dhabi (3 days p.w) it is on someone else’s plane. Note not only will QF passgers be on EK flights to Asia but vice versa (EK passengers on QF flights).

    The AFR article is quite unremarkable except for the 5 new-ish A330s on the horizon (possibly EK hand-me-downs) for international until the 787s arrvie in 2016-17, which will be a 50% increase in the A333 capacity replacing the 744s I expect.

    Having a focus on Asia and the US makes sense and code sharing to much of Europe is a bit ‘so what’, everybody else (European airlines that is) does it.

    by patrick kilby on Dec 12, 2012 at 1:29 pm

  3. Patrick,

    There is no precedent for the ACCC approving a code share in which competition is reduced by the withdrawal of one of the parties from the Australian market.

    Qantas is withdrawing from offering a direct flight to Europe from Brisbane, as it is from Perth, and it is not proposing to compete with Emirates from Adelaide.

    These are serious matters, and while I’m not predicting how the ACCC will find, I think it can be safety said that it has some difficult questions to resolve.

    The underlying requirement of the ACCC in granting applications for anti-trust immunity in relation to jointly offering fares and aligned schedules and loyalty reciprocity has been that capacity and competition not be reduced.

    I would argue that in some respects in specific cities competition and capacity are being reduced.

    by Ben Sandilands on Dec 12, 2012 at 1:50 pm

  4. I’m a bit confused that these extra 5 330′s could possibly be sourced from the domestic fleet and the gaping hole then patched up by “extra utilisation” of narrow body aircraft. Is there that much slack in the domestic fleet. Is it wise for Qantas to remove 330′s from domestic operations while Virgin are adding them.

    It sounds like fleet planning on the fly.

    by StickShaker on Dec 12, 2012 at 2:21 pm

  5. gapot, wasn’t the plan always for EK to stick with the old airport while its competitors get shoved into the new one?

    by Aidan Stanger on Dec 12, 2012 at 4:46 pm

  6. Ben,

    All complex code share arrangements involve some reduction of competition (by definition). It is question of degree and to Europe it is miniscule even from Brisbane Adelaide and Perth given CX, VA, SQ, EK, EH et al from most Aussie ports and then a whole lot of Chinese from as many as QF serves directly if not more. Note QF has its main hub in Syd and Melb for many of us. I suspect the regulator will give a 5 year go-ahead, some restrictions on Tasman, and seek some assurance that QF will offer more than one one-stop option for Brisbane and Perth i.e via Singaore or HK Birbance

    by patrick kilby on Dec 12, 2012 at 4:56 pm

  7. StickShaker,
    That “slack” is presently in the 11 A330s that are presently painted silver with an orange star,
    and will be repainted in white once the 15x Dreamliner 787-800s arrive for Jetstar.

    by moa999 on Dec 12, 2012 at 4:56 pm

  8. Patrick,

    The ACCC says in the clearest of language that it doesn’t permit code shares or alliances that reduce existing capacity.

    It is also a characteristic of its approvals to date that guarantees are imposed as to the maintenance of the sum total of the capacity currently flown individually by the parties to any proposed arrangement.

    Gapot,

    The new airport was under active construction when I flew right over it earlier this year. The new A380 terminal at the current airport is nearly ready, and Qantas under the proposed partnership will be the only other A380 operator to use it.

    by Ben Sandilands on Dec 12, 2012 at 5:06 pm

  9. Ben, the competition and capacity argument would have been more persuasive if Qantas had been more competitive to start with. But can you honestly claim they’re cheaper than their competitors? Or more comfortable? Or more frequent? More reliable? Better customer service? Even safety isn’t unambiguously in Qantas’s favour any more!

    I can’t speak for Perth or Brisbane, but Qantas’s ceasing to operate international flights from Adelaide is barely noticeable. SQ already take most of the traffic to Singapore and beyond, and they’re increasing their service frequency in an attempt to compete with EK. Compitetion with MH ensures prices remain reasonable, and total international flight capacity from Adelaide has increased. China Southern are likely to increase it further before long, though no date’s been set.

    Qantas’s new strategy is silly but their old one wasn’t much better. Until they fly direct to places their competittors don’t, it’s hard to see how they can stem the decline.

    by Aidan Stanger on Dec 12, 2012 at 5:35 pm

  10. Ben the problem with “The ACCC says in the clearest of language that it doesn’t permit code shares or alliances that reduce existing capacity.”, but then if the lack of an agreement also reduces capacity then what e.g for South Africa QF and SAA can only operate it (economically i.e have 4 engine planes) and without the agreement only one will.

    For QF without the agreement capacity to London will drop to one flight per day not two. The problem the ACCC has is to weigh those consequences as well, i.e not only the real drop in capacity, but the expected drop in capacity from their non approval as well.

    by patrick kilby on Dec 12, 2012 at 6:36 pm

  11. Moa999:

    The current plan (subject to change of course) is that those 11 330′s returning to Qantas Domestic will replace the aging 16 767′s (just refurbished) that will then be retired. Those 330′s are 332′s so there is unlikely to be a net increase in seats.
    Take away 5 of those 330′s and that leaves quite a gap – effectively 16 767′s being replaced by 6 332′s.

    Not to mention that those 332′s will all have a high density Jetstar configuration which is not appropriate for Qantas international ops.

    It doesn’t sound very well thought out to me.

    As Ben has pointed out – it would make far more sense for the 788′s to go direct to Qantas.

    by StickShaker on Dec 12, 2012 at 7:18 pm

  12. Patrick,

    Joyce told the ACCC in the submission and in interviews that Qantas would cease to serve London if the deal wasn’t approved because it had already cancelled its Singapore slots attached to the existing London service from 31 March 2013.

    Putting aside the fact that Qantas could always get them back by asking for them, this form of communication, which some could interpret as a threat, has further isolated Qantas in my opinion in relation to its standing in Canberra and a range of other authorities.

    It is not a good way to negotiate. It hasn’t worked in relation to Tourism Australia, since Dixon retains the support of the government, and it may not work with the ACCC either. Such big headline grabbing tactics cost the carrier $194 million it attributed to the grounding in its annual results, just as fiercely lobbying against ‘Arab airlines’ in Canberra shortly before the Emirates deal was revived hasn’t exactly increased the political goodwill for Qantas either.

    There is a whole paper to be written on the actions by which Qantas has alienated its natural allies, once these toxic tactics work their magic and the page is turned.

    by Ben Sandilands on Dec 12, 2012 at 7:32 pm

  13. Ben said “There is no precedent for the ACCC approving a code share in which competition is reduced by the withdrawal of one of the parties from the Australian market.”

    Last time I checked Qantas were continuing to fly the same flights from Adelaide to Singapore. So there has been no reduction in capacity on that leg.

    Qantas continues to offer flights into the future from Adelaide to London via Singapore. The Singapore to London leg is on BA. When you book Qantas out of Adelaide to London in 2013 you have the option of going via either Dubai or Singapore. Going via Singapore is slightly cheaper than Dubai.

    It can be argued that flyers out of Adelaide now have more choice with Qantas. They can go via Singapore or Dubai to London. Once the Emirates deal is up then Adelaidians will have a another direct option via Dubai.

    by Flying High on Dec 13, 2012 at 1:52 pm

  14. Flying High: how can you say that “flyers out of Adelaide now have more choice with Qantas” when the Singapore-London leg is on BA or via Dubai [presumably with Emirates]?

    by ltfisher on Dec 15, 2012 at 9:25 am

« | »