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aviation

Dec 12, 2012

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?

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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.

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