Proposed Qantas-AA deal pulls wool over investors’ eyes

Qantas AA LAX.jpgAlthough passengers will see gains if Qantas receives approval of of its joint business agreement (JBA) to “reinvigorate” its partnership with American Airlines, the main beneficiary will be Qantas investors and stakeholders because the application shows that Qantas is finally doing something.

(See related post: should the JBA be approved?)

From the four years since Virgin Blue announced interest in Boeing 777 aircraft and the two years since V Australia entered the trans-Pacific market, Qantas did nothing strategic to combat competition until it announced this January it would move its San Francisco flight to Dallas, a service that began Monday and offers more connectivity with AA than out of Los Angeles or San Francisco.

Not only was Qantas riding its coattails, V Australia was becoming aggressive, striking an alliance with Delta a mere five months into the former’s operation. Although the joint-venture was only finally approved last week, there should have been no doubt the two would be a reckoning force. Even without anti-trust immunity, Delta and V could codeshare and establish reciprocal frequent flyer and lounge benefits, three critical parts to grow business.

Now Qantas is placating investors and stakeholders by telling them it is! doing something. In fact, it’s doing somethings. But they are not impressive. The list of benefits arising from the renewed partnership reads like a list of everything Qantas could have been doing for years–without approval–but did not bother since it had a duopoly on trans-Pacific services.

Let’s break down the seven “benefits” listed in the carriers’ application to the Australian Competition and Consumer Commission.

1. FREQUENT FLYER PROGRAMMES

What Qantas says about proposed benefit under JBA:


Equivalent privileges for one airline’s frequent flyers when travelling on the other airline (including points bonuses, cabin upgrade offers and onboard loyalty status recognition).

What Qantas does not say:

oneworld is woeful at earning miles on non-premium tickets. Some of the cheapest Qantas tickets earn zero miles on American Airlines while others earn a measly 50%, although that was not as bad as the 25% AA gave for British Airways flights prior to their trans-Atlantic joint venture. Post JV approval, AA bumped that up to 100%. If AA and Qantas wanted to, they could today give their members 100% mileage earning on revenue tickets.

Members already earn elite bonuses but cannot access upgrades using miles. As for the impressive-sounding onboard loyalty recognition, does that entail a basic PA like Virgin Australia’s where it gives a special shout-out to Etihad members?

2. AAVACATIONS (TOURISM PROMOTION)

What Qantas says about the current situation:


AAVacations does not promote Australia as a holiday destination.

What Qantas says about proposed benefit under JBA:


The Proposed JBA will facilitate improved tourism to Australia through new services and the active promotion of Australia as a holiday destination by AAVacations.

What Qantas does not say:

Complacency, not regulatory approval, is the problem here. With trans-Pacific flights often full and ticket prices high with little marketing effort (prior to the duopoly ending), there was little incentive for American Airlines’ tour operator arm, AAVacations, to put package deals together for Americans. If flights to Australia exist–under a JBA or no JBA–a potential market exists.

3 & 4. MARKETING AND THE CORPORATE SECTOR

What Qantas says about the current situation:


a) No or limited joint marketing. b) Limited opportunity for joint corporate dealing.

What Qantas says about proposed benefit under JBA:


a) Co-branded marketing initiatives will better utilise the respective home market sales and distribution networks of each carrier and avoid duplication. b) Will work together to simplify corporate fare offers, maximise discounts and streamline the procurement process for corporate customers and be in a position to better meet the demands of corporate customers for alliance based deals.

What Qantas does not say:

When Qantas and AA were in their heyday, they had it good. Qantas was the only reputable trans-Pacific operator and had the domestic network while AA was the largest airline in the US and the world. There was no threat from United having a larger domestic market with its Continental merger, and no threat from Delta entering the market with its large network courtesy of its merger with Northwest. Although Qantas has recently felt pressure from Virgin on the domestic corporate market, the pressure was there since V Australia’s launch two years ago. What took so long?

5. INCOMPLETE FARE BOOKING INVENTORY

What Qantas says about the current situation:


AA does not have access to tactical sale fare classes and Qantas has limited access to discount economy inventory on AA for add-ons and groups.

Qantas says the JBA will:


optimise the number of discounted seats available through the booking life of a flight as well as the strategic release of discounted inventory to drive volume on poor performing routes.

What Qantas does not say:

Qantas and AA already practice this on flights to the US via Toyko. AA’s Australian division coordinates with Qantas for a fare comprising a Qantas flight to Tokyo and AA flight to the US that is significantly cheaper than if booking two tickets. Limited inventory access is an airline, not regulatory, problem. This is only a problem now because increased competition means Qantas and AA need to match, where possible, competitors’ fares and give up the high yields they used to enjoy under limited competition.

6. COORDINATE PRICES (requires regulatory approval)

Qantas says the JBA will:


facilitate lower fares, additional discounts to the majority of the most visited United States destinations, new fare products including ‘Walkabout fares’, preferential availability and enhanced responsiveness to market conditions.

What Qantas does not say:

Like the incomplete fare booking inventory, the need to offer lower fares only arises through competition (but competition that is well established by now). While Qantas is eager to toot the JBA offering discounts of $700, that reduction is only to five smaller cities. Fares to larger cities like New York, Boston, and Washington see discounts of only $50 or less.

The “Walkabout Pass”, in which tourists travelling to North America from Australia and New Zealand pay a set fee for regional North American flights is a no-brainer. Indeed, it is very similar to oneworld’s Visit North America pass but Qantas is promising the pass will be integrated with trans-Pacific flights and reduce taxes, another enhanced offering that arises out of competition. A similar pass will be offered to non-Australian tourists for domestic Australian flights.

7. COORDINATE CAPACITY (requires regulatory approval)

What Qantas says about proposed benefit under JBA:


Detailed sharing of market information will lead to improved demand forecasting, prompt identification of market opportunities and enhanced ability to cater for growth through the addition of routes and frequencies.

What Qantas does not say:

Qantas says initial responses to its Dallas flights show connecting flights to Vancouver, Calgary, and Toronto are popular, even with their lengthy layovers. But AA can easily gleam that by seeing where its connecting passengers are coming from and how many they number.

WHO BENEFITS?

These benefits, if approved, will be good for passengers. (See related post if the JBA should be approved.) But I have no doubt Qantas will succeed in confusing the majority of investors and stakeholders of its delinquency for proactivity. It remains to be seen if this new deal is too little, too late for Qantas’ once firm hold of the trans-Pacific market.

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