Emirates Airline the clear winner in Qantas partnership

Qantas’ struggles have hindered Dubai from benefiting from the carrier’s partnership with Emirates Airline. Brendon Thorne / Bloomberg News

A year ago yesterday, Emirates Airline and Australia's Qantas launched their partnership with a breathtaking double-A380 fly-by over Sydney Harbour.

Unsurprisingly, Emirates is already a bigger winner in an alliance that resulted in a switch of the stopover for Qantas long-haul flights to Dubai from Singapore, helping to boost passenger traffic at Dubai International Airport by 11.7 per cent in February compared to a year earlier.

Government data last week also showed that Australasia was the fastest-growing market for passenger traffic at Dubai International, increasing by 30.5 per cent on the back of the tie-up.

Emirates has already leveraged its relationship with Qantas to expand its market share in Asia-Pacific. In February it signed a codeshare agreement with Jetstar, Qantas’s low-cost unit. Emirates said the agreement would give its passengers access to 27 new routes and six new destinations in Australia, New Zealand and Asia.

“Qantas needs Emirates more than Emirates needs Qantas,” said Will Horton, a senior analyst at the Sydney-based Centre for Aviation (Capa).”Emirates certainly had no problems being successful in Australia before the Qantas partnership.”

The Australian carrier is struggling with financial woes, ironically brought on by fierce competition from Gulf carriers including Emirates.

Known as the flying kangaroo, Qantas in February reported a loss of A$235 million (Dh771.4m) for the second half of last year, compared to a profit of A$109m a year earlier. The company said it would cut 5,000 jobs from its total workforce of 32,000.

“Qantas is a structural mess and no one wants to touch it with a bargepole. And quite rightly, too. Qantas represents everything that is wrong in how to run an airline,” said Saj Ahmad, the chief analyst at StrategicAero Research.

However, in a sign that Qantas has come to accept the need for a full reckoning, the airline has begun to cut costs. Qantas said it was planning to sell or defer the purchase of 50 aircraft and defer orders for eight Airbus A380s and three Boeing 787 Dreamliners that it had ordered for Jetstar.

“The situation with Qantas is severe, but there is a path ahead, although that requires much restructuring, which Qantas is starting to do,” said Mr Horton.

Hit by high fuel costs, aggressive competition and slow international demand, Qantas also faces tough competition at home, highlighted by a price war with Virgin Australia, a partner of Etihad Airways.

“Any increased exposure in Virgin will mean Etihad will be more exposed to any turbulent times ahead, but Etihad has made clear this is a long-term investment,” said Mr Horton.

However, unlike Virgin Australia, which is majority owned by Etihad, Air New Zealand and Singapore Airlines, Qantas by law must stay primarily in Australian hands.

James Hogan, the Etihad chief executive, has said the Abu Dhabi carrier might increase its stake in Virgin. Yesterday, Singapore Airlines raised its stake in Virgin to 22.1 per cent from 19.8 per cent.

“Qantas is an inept and inefficient dinosaur like many European Union and United States airlines, and Etihad can push Virgin Australia to hit Qantas where it hurts while also poaching international traffic,” Mr Ahmad said.

The Australian government is weighing the removal of a 49 per cent cap on foreign ownership in Qantas, a proposal that is being challenged by opposition parties such as Labor and the Greens.

“Emirates won’t be affected by Qantas’s ownership laws since Emirates has stated quite clearly it isn’t interested in buying any airline stakes – least of all Qantas,” Mr Ahmad said.

But the potential downside for their partnership, which lasts for another four years, is the arrival of an investor who would change the current status quo.

“Any potential future investor in Qantas would want Qantas to maximise its potential, which the Emirates partnership can help do,” said Mr Horton.

“But the risk is if an investor is an airline in an overlapping market, such as an Asian airline serving Australia and Europe. That airline may want some of Qantas’s Europe traffic routed away from Dubai,” he added.

However, despite Emirates’ lack of interest in investing in other carriers, its strategy is not written in stone.

The Emirates president, Tim Clark, said last month: “We have no plans at the moment to buy stakes in other airlines. I never say never because I’m not going to be always sitting here forever, so others coming after me may say that’s what they want to do. I don’t know.”

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