Issues & Trends – September 2012

QF’s Joyce follows lead set by DJ’s Borghetti

AFTER years of complaining about the allegedly “unfair” competition it faced from government-owned carriers, Emirates and Singapore Airlines, Qantas has apparently decided “if you can’t beat ‘em, join ‘em”.

The Australian carrier this month made a well-publicised announcement that it will seek Australian Competition and Consumer Commission (ACCC) approval of a wide-ranging partnership with Dubai-based Emirates.

The move will see Qantas shifting the hub for its European services from Singapore to Dubai.

It came after Qantas attempted to do a deal with Singapore Airlines but was rebuffed because the Singapore carrier was not prepared to walk away from its existing arrangement with Virgin Australia, according to a report in the Australian Financial Review.

Virgin’s tie-up with Singapore Airlines was one of several key alliances set up by former Qantas executive, John Borghetti, after he took the helm at Virgin Australia.

Another was with Emirates’ UAE neighbour, Abu Dhabi-based Etihad. That alliance also includes Etihad taking an equity stake in Virgin.

Qantas boss Alan Joyce now appears to be following Borghetti’s strategy of forming bilateral relationships with key individual carriers rather than join-ing one of the larger airline alliance groupings.

Borghetti’s Virgin Australia – like Etihad and Emirates – has steered away from these groupings.

Indeed Etihad chief executive James Hogan has questioned their future. When asked about Qantas’ plans for a Dubai hub in conjunction with Emirates, he commented drily that it’s “always nice” when a competitor feels the need to adopt your strategy. (travelBulletin, August)

Qantas remains a member of the oneworld alliance but its partnership with Emirates means the end of its kangaroo route agreement with oneworld co-founder British Airways (BA) and drastically undermines the effectiveness of the alliance in this market.

It is understood that BA will continue to fly its metal to Sydney, its one remaining Australian gateway, and there is speculation it could form a partnership with another UAE carrier, Qatar Airways.

The move will also see Qantas withdrawing its metal from Frankfurt but this was the only negative for tourism leaders who otherwise warmly welcomed the Qantas-Emirates link.

Assuming the ACCC give the go-ahead to the partnership it will be interesting to see the extent of product and operational harmonisation under-taken by the two airlines beyond such obvious areas as frequent flyer programs and airline lounges.

Travel agent observers, for example, will hope that Qantas follows Emirates agent-friendly commission policies on fuel surcharges. Others will wonder about the potential for the currently three-class Emirates to add a premium economy cabin like Qantas.

Meanwhile Qantas is maintaining that using Dubai as the hub for its Europe services will enable it to improve Asian scheduling over Singapore. No longer constrained by Europe scheduling requirements, it will be able to offer more same day connections to Asian destinations.

Qantas’ announcement of the proposed tie-up said: “The 10-year partnership will go beyond code sharing and includes integrated network collaboration with co-ordinated pricing, sales and scheduling as well as a benefit sharing model.”

Listed as “significant benefits” for Australian consumers are:

• An expanded global network, improved connectivity and greater choices for Qantas passengers to seamlessly travel from Australia and New Zealand to Europe and the Middle East/North Africa Region;

• Enhanced frequent flyer benefits for passengers of both airlines including enhanced points earning and redemption opportunities across the combined networks; and

• Establishing a long term business model to optimise the operating performance of both Qantas and Emirates including by reducing operating costs. The submission to the ACCC also claims the partnership will provoke more competitive fares and product/service offerings from rival carriers. It also argues that Emirates’ long-term growth strategy in Australia will be materially enhanced and expedited by the partnership for the benefit of Australian consumers, without Emirates taking any equity stake in Qantas.

• Qantas and Emirates are willing to offer a formal commitment not to reduce overall trans-Tasman capacity.

• The partnership will give Qantas customers one-stop access to more than 70 Emirates destinations in Europe, the Middle East and Africa.