By Neil Hume in Sydney
Qantas Airways has struck a deal with Emirates that will see Dubai replace Singapore as the stopover point for its European services, as part of an overhaul of the Australian carrier’s lossmaking international business.
From April all Qantas flights to Europe will operate through Dubai under a comprehensive partnership that will see the two airlines co-ordinate pricing, sales and scheduling of flights. There will also be a profit sharing agreement on flights between Australia and the UK.However, there will be no equity agreement on either side and Qantas will not cede any of its valuable slots at London’s Heathrow airport to its new Dubai-based partner. The agreement, which will see Qantas end its 17-year-old joint venture with British Airways on Australia-UK routes, is conditional on approval from regulators.
Describing the tie-up as ”bigger than a code share or joint services agreement” Alan Joyce, Qantas chief executive, on Thursday said it was a “massive step forward” in efforts to return the international business to profitability by the middle of 2014.
Battered by rising fuel prices and competition from carriers in the Middle East and Asia, Qantas’ international business lost A$450m last year, resulting in the airline posting its first annual loss since it was fully privatised in 1995.
“This is the biggest arrangement Qantas has ever [gone] into with another airline, moving past the traditional alliance model to a new [one]. It will deliver benefits to all parts of the group,” said Mr Joyce, adding it is a “springboard” for growing services into Europe.
From April, Qantas will operate two A380 flights per day to London via Dubai – one from Sydney, one from Melbourne. It will scrap existing code share agreements in Europe and cease services to Frankfurt.
Analysts believe the partnership with Emirates could generate an annual earnings uplift of A$80m-A$90m for Qantas but Mr Joyce refused to be drawn on figures.
The partnership will help fast-growing Emirates tap into the lucrative corporate market in Australia, which is being targeted by rivals including Abu Dhabi-based Etihad.
Tim Clarke, president of Emirates, hailed the deal as a step-change that could mark the beginning of the end for the alliance agreements that currently dominate the global airline industry.
“This arrangement with Qantas is perhaps the start of a new thinking as to how the airline industry understands traffic flows across the planet,” he said.
Shares in Qantas, which have fallen by almost a third over the past year, rose 6.7 per cent to A$1.20 on Thursday.
Willie Walsh, chief executive of BA’s parent company International Airlines Group, said the termination of the joint services agreement with Qantas was amicable and would not have any impact on earnings. He added BA was “talking to a number of airlines about alternative options”.
The partnership will also allow Qantas to restructure its Asian network, seen as one of its key strategic weaknesses. With its new Dubai hub for Europe flights, Mr Joyce said Qantas could increase capacity and tweak flight schedules to Singapore and Hong Kong to increase same-day connections across Asia.
Russell Shaw, analyst at Macquarie Securities in Sydney, said the deal was in line with what the market had been expecting, but noted “there could be further upside than we previously expected on a revenue/profit sharing arrangement over the UK”.
However, he added: “We would assume material exit costs on Frankfurt and other potential asset writedowns depending on the extent to which the 747s are redeployed.”