Qantas/Emirates partnership: How other players are affected

Photo courtesy Qantas

The Qantas/Emirates partnership should be about the survival of Qantas in a competitive market that has seen its international operations dipping into red ink. With the alliance, Qantas CEO Alan Joyce is optimistic that the Australian flag carrier will revert to profitability a year after its formalization which is pending approval by the authorities and expected to take off in April 2013.

Mr Joyce has good reasons to be sanguine about the partnership as the extensive non-equity agreement will give Qantas access to more than 70 destinations in Europe, the Middle East and Africa from Dubai through Emirates, which will reciprocally gain access to some 50 destinations in Australia. Customers of both Qantas and Emirates will enjoy seamless transfer within their networks and other perks such as frequent flyer benefits and access to premium airport lounges.

Qantas CEO Alan Joyce/Photo courtesy bloomberg.com

Qantas CEO Alan Joyce enounced the following guiding principle of the partnership: “Treat each other’s customers as your own”. He said: “Where there is a difference in customer service, we’ve agreed to make the higher benefit our standard.”

That is certainly a booster for customer service, a dose that Qantas badly needs in light of a spate of recent events such as the costly industrial disputes that resulted in a string of flight disruptions, and the unnecessary delay of a flight out of Dallas Fort Worth because of a dispute between the pilots.

But how will the partnership redefine the competitive landscape? Interestingly, it is as much about Qantas as it is about its rivals in the field, and the partnership is best measured by the impact it has on those other players.

Singapore Airlines (SIA)

It looks like Qantas and Emirates are joining forces to take on old-time rival SIA, which may have caused Qantas some concern in its alliance with Virgin Australia. However, the SIA/Virgin alliance is not as strong as the Qantas/Emirates partnership in view of Virgin’s limited network by comparison. That alliance aims more at improving SIA’s access to Australia’s secondary destinations through Virgin.

Photo courtesy Singapore Airlines

SIA will find the combined Qantas/Emirates team a formidable competitor on the kangaroo route, especially since Emirates is itself has become a strong brand in the premium market. Together, Qantas and Emirates will operate 98 weekly services between Australia and Dubai – from Sydney, Melbourne, Adelaide, Brisbane and Perth – with one-stop connection to 33 European destinations or all the way on seven of the Qantas services to Rome, Paris and London, expectedly far more than SIA on its own.

We can expect keener competition on service, both in-flight and ground, as well as pre-flight, and on fare, routing and network connections.

The Qantas/Emirates partnership may also heighten the competition between SIA and Emirates in their individual capacity. While both airlines may ride on their respective alliances with Virgin and Qantas in pursuit of their dreams to fly trans-Pacific from Australia to the US west coast – a dream that SIA has pursued as far back as 2005 – Emirates, in its tie-up with Qantas, may succeed ahead of SIA.

Singapore Changi Airport

Qantas has confirmed it will shift its hub for European flights from Changi to Dubai International Airport. The Singapore-Frankfurt service will be withdrawn and it is possible too services from Singapore to London may subsequently be reduced, though unlikely to be completely removed. The choice of routing – all else being mostly equal – is often more the prerogative of the airline than the passenger.

Picture courtesy Changi Airport

However, Changi may take comfort in Mr Joyce’s quick assurance that the Singapore airport will continue to be the Qantas hub for connections across Asia. In fact, he said Qantas would increase dedicated capacity to Singapore, and this may amply compensate the loss of flights and transit traffic on the kangaroo route with increased numbers stopping in Singapore and connecting other Asian destinations as Qantas expands its operations in the region.

Mr Joyce explained the rationale for the restructure: “With European services travelling through Dubai, Qantas’ Asian services will no longer be a subsidiary of the Kangaroo Route. Instead they will be dedicated to connecting Australians with our region, and Asian visitors to Australia.”

This will help Qantas to focus on exploiting opportunities in the lucrative Asian market. You will recall how its grand strategic restructuring plan announced last year includes the setting up of a premier Asia-based airline which it has so far been unable to lift off for lack of an interested partner to participate in the joint venture. The way it is now giving Asian operations its own identity seems to suggest this may well be the answer to that proposal – the evolvement of what is dedicated to the Singapore hub as that premier Asia-based operation to complement the no-frill Jetstar operations.

For Changi, Qantas’ boost to Dubai may be a painful upset in the continual battle between the two airports to be the preferred East-West hub.

Malaysia Airlines and Kuala Lumpur International Airport (KLIA)

Picture courtesy en.wikipedia.org

The Qantas/Emirates partnership has robbed both Malaysia Airlines and KLIA an invaluable opportunity for growth, which they may blame on the tardy process of negotiations between Malaysia Airlines and Qantas to reach agreement on jointly setting up an Asia-based premier airline (RedQ), which would likely be based at KLIA in direct competition with SIA and Changi for hub status. But the choice of Malaysia Airlines as a JV partner may not be strategically viable for Qantas since the former is itself struggling in red ink. Besides, KLIA is not as strategically positioned as Changi. In the end, it may be a blessing in disguise for Qantas now that RedQ may evolve naturally out of its focus on Changi as a hub for its Asian operations, in form though not in name.

British Airways (BA)

Photo courtesy British Airways

In teaming up with Emirates, Qantas is terminating its Joint Services Agreement with BA. The move probably means more for Qantas for what it is likely to gain and less for BA for what it is likely to lose. Mr Joyce said “the time is right to wind up” the agreement, which has proven to be a lacklustre one. In the highly competitive airline business, it helps when you have a strong partner.

Other players

Other Middle-Eatr airlines such as Qatar Airways and Etihad Airlines are already increasing the competitive pressure on Qantas, operating to the Australian continent. Etihad has doubled its stake to 10 per cent in Virgin. In this respect, Qantas entering into a partnership with Emirates may look more like a defensive move.

Qantas is likely to also benefit from Emirates’ operations in Asia. But Asian airlines are likely to be unfazed, or to be any more rattled than now when the present state of play already witnesses Qantas setting up joint venture bases across the region through its budget subsidiary Jetstar in Singapore, Japan, Vietnam and, pending approval, Hong Kong. In fact, with Qantas eyeing the large and lucrative China market, Hong Kong International Airport may well emerge, thus challenging Changi, as a veritable Asian hub for Qantas.

Picture courtesy en.wikipedia.org

The Qantas/Emirates partnership has drawn more interest than most other alliances for the possible shifts that it may bring about in the competitive aviation landscape. The next interesting question to ask is: How will its rivals react to those shifts?

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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