The outing of a yet to be finalised closer commercial relationship between Qantas and Emirates in today’s AFR can be read as the deal that may give Qantas group CEO Alan Joyce more time to save his job, or, prove to be the final straw when it comes to badly burned investors and employees in an airline in crisis.
Qantas shares closed at 99 cents yesterday, unthinkably low levels for the stock that was supposed to be the world’s only investment grade airline right up until 5 June when it apparently suddenly remembered to advise the ASX that its underlying profit before tax could be down up to 91% in the year that ended on 30 June.
That disastrously late insight into the true state of affairs at Qantas, which has since admitted to weakening trading conditions in its domestic activities as well as its self maligned international operations, led to the current share price rout.
Qantas has been widely reported, here and elsewhere, as having been in discussions with Emirates, and this was also confirmed by the Dubai based giant global carrier which was at pains to spell out that it doesn’t invest in other airlines (anymore) but saw some merit in a closer relationship if that proved possible, meaning on its terms.
The attractions and potential problems in a comprehensive commercial arrangement between Emirates and Qantas are obvious.
It would counter, on a massive scale, Virgin Australia’s close equity bolstered relationship with its up to 10% owner, Etihad Airways, the Abu Dhabi based smaller but rapidly growing rival to Emirates.
Virgin Australia also has close relations with Air New Zealand, a 20% stakeholder, and the largest US and world carrier, Delta, and Singapore Airlines, all of them thorns in the side of Qantas when it comes to the trans Tasman, Asia hemisphere and America markets.
But the downside is that Emirates doesn’t actually need Qantas for anything it can’t do in its own right, including set up its own domestic entity in Australia if it ever felt so inclined, and any tie up between Qantas and Emirates would render continuation of its long established joint services agreement with British Airways problematical.
Disengaging from British Airways could impact the Qantas participation in the oneworld alliance, and in turn harm its joint venture with American Airlines over Dallas Fort Worth and Los Angeles, and pose issues for the Qantas relationship with European carriers such as Air France and Finnair, which link with Qantas in Singapore, and conduct ferocious anti-Emirates tirades of their own at a political and public level in Europe.
For Joyce, and Qantas shareholders, the clock is ticking loudly as the count down to the release of the Qantas financial result to 30 June on 23 August bears down.
Joyce needs another attention grabber, like the offshore Asia based single aisle premium carrier that came to nothing, or the sudden grounding of the airline last October, which backfired badly, or the death threats theatrics, for which the NSW Police special task force discontinued its investigation without explanation.
The airline is in strife at all levels, especially among those parliamentarians it lobbied recently about the evils of allowing an Arab owned airline like Etihad increased access to its competitor Virgin Australia, even though it is now clear to all that it was desperately trying to divert attention from its own failings by getting close to the biggest Arab owned airline of all, Emirates.
It is in crisis in terms of profitability, credibility and image.
The much anticipated dropping of Qantas flights to Frankfurt, and the possibility of being a conduit for Emirates on Emirate’s terms, may not prevent an even harsher spotlight falling on Joyce’s management failures in coming weeks.