Embattled Qantas pins Asia, profit hopes on Emirates deal
September 10, 2012, 2:43 pm TWN
SYDNEY -- Embattled Australian carrier Qantas said Sunday its lagging international business was expected to break even again from 2014 after a tie-up with Emirates it hopes will help it refocus on Asia.
Qantas has described the 10-year partnership with Emirates, unveiled last week and subject to regulatory approval, as “momentous” for the industry and an important step in reversing its hemorrhaging international arm.
The alliance, expected to be operational in April 2013, will see Qantas's hub for European flights shift to Dubai from Singapore, ending a lengthy partnership with British Airways on the so-called Kangaroo route to London.
It will extend beyond code sharing and joint services to include coordinated pricing, sales and scheduling and a benefit-sharing model, although neither airline will take equity in the other.
Qantas chief Alan Joyce said it was the biggest deal in the airline's history and “the biggest deal I think we're ever going to do.”
“We were missing continental Europe as a strong partnership ... it also fixes the gap we had in North Africa and the Middle East and frees us up to fix the issues that we have in Asia,” Joyce told ABC television.
Though Qantas's domestic business is a strong performer its international arm is struggling with high fuel costs and steep competition, accounting for much of the airline's AU$244 million (US$253 million) loss in 2011-12.
The half-billion-dollar reverse in its fortunes in just 12 months and Qantas's first loss since privatization in 1995 saw Standard and Poor's downgrade the Australian carrier's credit rating despite the Emirates deal.
S&P said the cut from BBB to BBB- — still investment grade — was due to “structural pressures affecting the airline's international business,” particularly in Asia, which it said would not be easily resolved.
But Joyce said Qantas had managed to find AU$300 million in savings and benefits since reporting the loss for the year to June 30 and the Emirates tie-up meant there was now a clear path “to this business breaking even in financial year (20)15, from August (20)14 onwards.”
Because Emirates would help plug its holes to Europe Joyce said Qantas flights that once flew through Singapore or Hong Kong as a stopover to London would now terminate in those cities and be redeployed to other Asian destinations.
“(That) makes us more competitive against Singapore (Airlines) and (Hong Kong-based) Cathay,” said Joyce.