If Qantas is dying, it only has itself to blame (part one: alliances)

Etihad A330
Etihad – a missed opportunity for Qantas? Photograph: Yannick Delamarre.

The importance of a global alliance–oneworld, SkyTeam, and Star–largely depends on which hemisphere you live in. If in the north, that global alliance is critical. If in the south or working for a Virgin group airline, geographic strategy comes before alliances.

That maxim is now being played out in Australia where oneworld-tied Qantas chief executive Alan Joyce warns the carrier is “falling significantly short of where we should be”.

At the same time, Virgin Blue is less than three weeks away from launching flights to Abu Dhabi as part of an alliance with Etihad Airways that will see Etihad ferry passengers onwards from Abu Dhabi to destinations primarily in Europe. (An Asian partner for Virgin Blue may also be announced this month to give Virgin Blue a virtual network in Asia.)

The point of this contrast is that failing to adhere to the alliance outlook is what is hurting Qantas on European traffic, or to use mainstream media headlines, “killing” the roo.

boeing-757-223-n174aa-american-airlines-oneworld.bmp.500x400.bmpWith its extensive alliance with British Airways, Qantas has retained London and Frankfurt as its only European ports. Passengers wanting to go elsewhere in Europe typically face a backtrack through Heathrow (left).

The Middle Eastern hub philosophy needs no extolling: carriers offer one-stop service between virtually all major cities in the world. What does need to be pointed out is that Virgin Blue’s gains could have been Qantas’s.

It was Qantas who Etihad originally brokered a deal with. The March 2009 agreement gave Etihad codeshares on domestic Qantas flights while Qantas had codeshare access on flights around the Middle East, in short: nothing too major.

A new world of choice.jpgEtihad wanted major but Qantas put oneworld first. Yes, Qantas has partnerships with SkyTeam’s Air France-KLM and Alitalia as well as Star Alliance’s South African Airways, but those are strategically important to specific geographies. Qantas was not inclined to enter Etihad’s complete European network and infringe on oneworld carriers.

As Etihad chief executive James Hogan said last August of breaking the partnership with Qantas, “We didn’t have the ability to move into frequent flyer [programmes], expand the network, and they’ve been very upfront in announcing that with Jetstar they’ll operate into the Middle East.”

“Based on that John [Borghetti] and I started discussions,” Hogan said. “The game changed. It’s not about being the biggest. It’s about being smart.”

Qantas lost a smart move, Joyce all but admitted last week. He announced the formation of a task force that will ultimately look at “opportunities to become a great global airline”, which Virgin Blue will effectively achieve in three years (I’m counting on it starting an Asian network soon).

Virgin Blue is doing that by way of virtual networks with SkyTeam-aligned Delta for America, Star Alliance-aligned Air New Zealand for the trans-Tasman, and unaligned Etihad for Europe and elsewhere. In Virgin Blue’s strategy there is an allegiance not to a single alliance but what makes geographic sense.

To paraphrase Hogan, those are smart moves, not big fleet orders for Virgin Blue to do the heavy lifting itself and consequently compete with the carriers it is now aligned to. Qantas is doing the heavy lifting itself, is competing with the likes of Etihad, and, from Joyce’s speech, not winning.

“Capacity has flooded into Australia from…the Middle East and elsewhere…these carriers are not growing the market, but simply taking existing demand,” Joyce said.

About that speech: it may have been aimed primarily to drum up public support for Qantas as it begins labor negotiations with unions. (That explains why Qantas PR made the unusual move of issuing a transcript of the gloomy speech.) Either way, Qantas’s weak network remains.

Oneworld European ports.gifOptions with oneworld to boost Qantas–in Europe, for the sake of the argument–are limited. Excluding London and Frankfurt, which Qantas serves, and the possibility of Iberia re-launching Tokyo flights, from Asia oneworld carriers can link to six European cities (see map, right). Etihad serves double that, and the carrier is growing.

Etihad is now a moot point for Qantas, but its lesson remains not to let a strategic opportunity get away.

Europe and alliances are only one part of Qantas’s changing place in the market. Next up I’ll look at other key markets for Qantas and see if Joyce is distorting figures on Qantas’s shape.

London Heathrow photo: AirSpace photographer Nicolas.H

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One Response to If Qantas is dying, it only has itself to blame (part one: alliances)

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